Question

In: Accounting

Kitts Ltd. has recently decided to go public and has hired you as their independent accountant....

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:

Solutions

Expert Solution

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

Related Solutions

. Mayflower Co. has recently decided to go public and has hired you as an independent...
. Mayflower Co. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Mayflower for 2019 and 2018 are provided below. BALANCE SHEETS                                                                                                  12/31/19                            12/31/18 Cash                                                                                       $408,000                          $ 192,000 Accounts receivable                                                                 360,000                             216,000 Inventory                                                                                   384,000                             480,000 Property, plant and equipment                          $608,000                           $960,000 Less accumulated depreciation                        (320,000)    288,000      (304,000)     656,000                                                                                              $1,440,000                        $1,544,000 Accounts payable                                                                  $ 176,000                         ...
Sheffield Corp. has recently decided to go public and has hired you as an independent CPA....
Sheffield Corp. has recently decided to go public and has hired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Sheffield Corp. for 2022 and 2021 are provided below. BALANCE SHEETS 12/31/22 12/31/21 Cash $407000 $ 192000 Accounts receivable 358000 216000 Inventory 382000 480000 Property, plant and equipment $610000 $960000 Less accumulated depreciation (322000 ) 288000 (302000 ) 658000 $1435000 $1546000 . Accounts payable $...
Harlan Mining Co. has recently decided to go public and has h+A1:F37ired you as an independent...
Harlan Mining Co. has recently decided to go public and has h+A1:F37ired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Harlan Mining Co. for 2022 and 2021 are provided below. BALANCE SHEETS 12/31/2022 12/31/2021 Cash 408,000 192,000 Accounts receivable 360,000 216,000 Inventory 384,000 480,000 Property, plant and equipment 608,000 960,000 Less accumulated depreciation -320,000 288,000 -304,000 656,000 1,440,000 1,544,000 Accounts payable 176,000 96,000 Income...
Harlan Mining Co. has recently decided to go public and has h+A1:F37ired you as an independent...
Harlan Mining Co. has recently decided to go public and has h+A1:F37ired you as an independent CPA. One statement that the enterprise is anxious to have prepared is a statement of cash flows. Financial statements of Harlan Mining Co. for 2022 and 2021 are provided below. BALANCE SHEETS 12/31/2022 12/31/2021 Cash 408,000 192,000 Accounts receivable 360,000 216,000 Inventory 384,000 480,000 Property, plant and equipment 608,000 960,000 Less accumulated depreciation -320,000 288,000 -304,000 656,000 1,440,000 1,544,000 Accounts payable 176,000 96,000 Income...
You are a junior accountant, recently employed by RM Resources Ltd., a public company traded on...
You are a junior accountant, recently employed by RM Resources Ltd., a public company traded on the Toronto Stock Exchange. The company is based in Alberta and it operates two divisions: an oil and gas exploration division, and a heavy equipment manufacturing division. The company is aggressively pursuing overseas partners who could provide further financing to expand operations into Asia. You arrive at work on a Monday morning in early January, 2019 and receive the following email: To: Junior Accountant...
As a recently hired accountant for a small business, SMC, Inc., you are provided with last...
As a recently hired accountant for a small business, SMC, Inc., you are provided with last year’s balance sheet, income statement, and post-closing trial balance to familiarize yourself with the business. You are also given the following information that summarizes the business activity for the current year,2020 As arecently hired accountantfor a smallbusiness,SMC,Inc., you are providedwithlast year’s balance sheet, income statement, and post-closing trial balance to familiarize yourself with the business. SMC, Inc. Balance Sheet December 31, 2019 Assets Cash...
As a recently hired accountant for a small business, SMC, Inc., you are provided with last...
As a recently hired accountant for a small business, SMC, Inc., you are provided with last year’s balance sheet, income statement, and post-closing trial balance to familiarize yourself with the business. SMC, Inc. Balance sheet December 31, 2019 Assets $34,500 Cash $25,000 Accounts receivable $10,000 Supplies $200 Total assets $69,700 Liabilities and stockholders equity Liabilities: Accounts payable $12,000 Salaries payable $1,000 Income taxes payable $3,675 Total liabilities    $16,675 Stockholders equity: Capital stock (10,000 shares outstanding) $25,000 Retained earnings $28,025...
As a recently hired accountant for a small business, SMC, Inc., you are provided with last...
As a recently hired accountant for a small business, SMC, Inc., you are provided with last year’s balance sheet, income statement, and post-closing trial balance to familiarize yourself with the business. SMC, Inc. Balance sheet December 31, 2019 Assets $34,500 Cash $25,000 Accounts receivable $10,000 Supplies $200 Total assets $69,700 Liabilities and stockholders equity Liabilities: Accounts payable $12,000 Salaries payable $1,000 Income taxes payable $3,675 Total liabilities $16,675 Stockholders equity: Capital stock (10,000 shares outstanding) $25,000 Retained earnings $28,025 Total...
As a recently hired accountant for a small business, SMC, Inc., you are provided with last...
As a recently hired accountant for a small business, SMC, Inc., you are provided with last year’s balance sheet, income statement, and post-closing trial balance to familiarize yourself with the business. SMC, Inc. Balance sheet December 31, 2019 Assets $34,500 Cash $25,000 Accounts receivable $10,000 Supplies $200 Total assets $69,700 Liabilities and stockholders equity Liabilities: Accounts payable $12,000 Salaries payable $1,000 Income taxes payable $3,675 Total liabilities $16,675 Stockholders equity: Capital stock (10,000 shares outstanding) $25,000 Retained earnings $28,025 Total...
You have recently been hired as a cost accountant at Travenol Laboratories. The controller is an...
You have recently been hired as a cost accountant at Travenol Laboratories. The controller is an "old school" accountant and has heard that you recently graduated with a degree in accounting. One day he summons you to his office to assign you a task. He says, "I understand that recently educated accountants are using a variety of statistical tools to determine causality between costs and their respective drivers. We have been using direct labor hours as our cost driver for...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT