In: Accounting
Kitts Ltd. has recently decided to go public and has hired you as their independent accountant. They wish to adhere to IFRS and know that they must prepare a statement of cash flows. Their financial statements for 2020 and 2019 are provided below:
Statements of Financial Position
Dec 31/2020 Dec 31/2019
Cash............................................. $ 51,000 $ 24,000
Accounts receivable........................ 45,000 27,000
Merchandise inventory.................... 48,000 60,000
Property, plant and equipment.......... $ 76,000 $ 120,000
Less accumulated depreciation.... (40,000) 36,000 (38,000) 82,000
Total Assets $ 180,000 $ 193,000
Accounts payable............................ $ 17,000 $ 12,000
Income taxes payable..................... 34,000 44,000
Dividends payable……………………………… 2,000 -0-
Deferred income tax liability……………… 10,000 5,000
Bonds payable................................ 50,000 80,000
Unamortized bond discount………………. (2,000) (5,000)
Common shares............................. 27,000 27,000
Retained earnings........................... 42,000 30,000
Total Liabilities & Shareholders’ Equity $ 180,000 $ 193,000
Statement of Comprehensive Income
Year ended December 31, 2020
Sales........................................................................................... $ 1,050,000
Cost of sales................................................................................ 894,000
Gross profit.................................................................................. 156,000
Selling and administrative expenses................................................ 99,000
Income from operations................................................................ 57,000
Interest expense.......................................................................... 9,000
Income before taxes..................................................................... 48,000
Income taxes............................................................................... 12,000
Net income.................................................................................. $ 36,000
The following additional data were provided for the year ended December 31, 2020:
1. Dividends were declared.
2. Equipment was sold for $30,000. This equipment originally cost $ 44,000, and had accumulated depreciation of $8,000 at the time of sale. Any gains, losses or other expenses not separately disclosed are included in “selling and administrative expenses”.
3. Bonds were retired during the year for proceeds equal to their carrying value. The unamortized discount associated with the bonds redeemed was $2,000.
Required #1:
From the information above, prepare, in good form, a Statement of Cash Flows under the direct method to the extent the information provided permits all disclosures, for the year ended December 31, 2020. Show supporting calculations only in area indicated; not in the body of the good form presentation.
Kitts Limited
Statement of Cash Flows For the Year ended December 31, 2020
Supporting calculations:
Required #2:
Prepare, in good form, the cash from operations only under the indirect method of presentation. Kitts Limited wishes to disclose any separate disclosures as regards interest and taxes in the body of the cash flow from (used in) operations sections and not as a separate disclosure. Show any supporting calculations in the area indicated, not in the body of the good form presentation.
Kitts Limited
Statement of Cash Flows (Operations Only) For the Year ended December 31, 2020
Supporting calculations:
Depreciation Expense = 40000 - 38000 + 8000 = 10000
Loss on sale of equipment = 44000-8000-30000 = 6000
Cash Flow Statement | ||||
Direct Method | ||||
Cash flow from Operating Activities | ||||
Cash Collected from customers | $ 10,32,000.00 | =1050000+27000-45000 | ||
Cash paid to Suppliers | $ -8,77,000.00 | =-(894000+12000-17000+48000-60000) | ||
Cash paid for Selling and administrative expenses | $ -83,000.00 | =-(99000-10000-6000) | ||
Cash paid for Interest | $ -8,000.00 | =-(9000-5000+2000+2000) | ||
Cash paid for Income tax | $ -17,000.00 | =-(12000+44000-34000+5000-10000) | ||
Cash from operating activities | $ 47,000.00 | |||
Cash flow from Investing Activities | ||||
Sale of Equipment | $ 30,000.00 | |||
Cash used in investing activities | $ 30,000.00 | |||
Cash flow from Financing Activities | ||||
Retirement of Bonds | $ -28,000.00 | =50000-80000+2000 | ||
Dividend Paid | $ -22,000.00 | =-(30000+36000-42000+0-2000) | ||
Cash from financing activities | $ -50,000.00 | |||
Net Increase in cash | $ 27,000.00 | |||
Opening Balance of Cash | $ 24,000.00 | |||
Closing Balance of Cash | $ 51,000.00 |
Cash Flow Statement | |||
Indirect Method | |||
Cash flow from Operating Activities | |||
Net Income | $ 36,000.00 | ||
Adjustments | |||
Depreciation | $ 10,000.00 | ||
Loss on sale of Equipment | $ 6,000.00 | ||
Amortization of Discount | $ 1,000.00 | ||
Deferred Tax | $ 5,000.00 | ||
Increase in accounts receivable | $ -18,000.00 | ||
Decrease in inventories | $ 12,000.00 | ||
Increase in Accounts payable | $ 5,000.00 | ||
Decrease in Income Tax payable | $ -10,000.00 | ||
Total Adjustments | $ 11,000.00 | ||
Cash from operating activities | $ 47,000.00 | ||
Cash flow from Investing Activities | |||
Sale of Equipment | $ 30,000.00 | ||
Cash used in investing activities | $ 30,000.00 | ||
Cash flow from Financing Activities | |||
Retirement of Bonds | $ -28,000.00 | ||
Dividend Paid | $ -22,000.00 | ||
Cash from financing activities | $ -50,000.00 | ||
Net Increase in cash | $ 27,000.00 | ||
Opening Balance of Cash | $ 24,000.00 | ||
Closing Balance of Cash | $ 51,000.00 |