The financial statements for Linked Ltd. are shown below:

During the year, the company purchased a capital asset valued at $30,000; payment was made by issuing common shares. Additional capital assets were acquired for cash. Changes in other accounts were typical transactions.

Required:

1. Prepare the SCF using the indirect method. Include required note disclosure of non-cash transactions. Omit the separate disclosure of cash flow for interest, investment income, and income tax.

2. Explain the company’s cash transactions for the year, based on the SCF.

Solutions

Expert Solution

Requirement 1

LINKED LIMITED

Statement of Cash Flows

Year ended 31 December 20x5

Non-cash transaction: Issued $30,000 of common shares for capital assets.

Requirement 2

The company had modest earnings for the year, at $110,400. However, there was a large cash flow from operations at $274,200. This difference is explained by the presence of a non-cash impairment of goodwill in earnings. Cash was raised through borrowing with a bond payable and shares were issued for cash. Cash was used to buy $579,000 in capital assets, a major investment. Cash was also used to pay $95,700 in dividends.

Junaid answered 9 months ago

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