Cannon Company
Statement of Cash flows
For the Year Ended 31 December 2015
Cannon Company has the following information for the year ending December 31, 2015.
Long-term debt of $18,000 was issued for cash.
Cash paid for labor during 2015 amounted to $489,500.
During the year, Cannon experienced a pension outflow of $14,000.
Dividends of $34,000 were received.
Cannon's cash balance at the beginning of 2015 was $975,000; at the end of 2015 the cash balance was $839,500.
The company made an investment of $310,000 in an affiliate company.
A lease payment of $110,000 was made on November 1, 2015. There is no asset recorded in connection with the lease.
During the year, Cannon collected $780,000 cash from customers.
Cash paid for income taxes amounted to $56,000 for all of 2015.
During 2015, Cannon discontinued its consumer electronics division. The business was sold resulting in a $12,000 net cash inflow.
Prepare Cannon Company's statement of cash flows for the year ending December 31, 2015 using the indirect method.
Explain how the indirect statement of cash flows that you prepared would differ under IFRS rules. Assume this is a non financial entity.
Part B
The following Income Statement and Operating Cash Flow information pertain to Receivership Inc.'s operations for the year ended December 31, 2014. Prepare the net cash flow from operating activities section of the cash flow statement using the direct method.
Income statement for the year ended December 31, 2014
Revenues 1,328
COGS 587
Rent expenses -152
Wages expenses -136
Insurance expenses -53
Other SG&A (includes depreciation expenses) -198
Interest expenses -30
Gain on sale of asset (5)
1,151
Income before tax 177
Tax 62
Net income 115
Cash flow provided by operating activities (indirect method), for the year ended December 31, 2014
Net income 115
Depreciation 32
Gain on sale of asset (5)
142
Increases/decreases in A/R 26
Inventories (35)
Prepaid rent 13
A/P 28
Wages payable (20)
Tax payable 5
Interest payable (2)
Advances from customers (3)
Other accrued SG&A 5
17
Net cash provided by operating activities 159
Part C (40 points)
The following information and financial statements excerpts pertain to Liquidity Inc.
a. All short term investments (securities available for sale) were purchased on 12/31/14 and sold during 2015.
b. The company entered a lease agreement on 12/31/15.
c. Fixed assets with a net book value of $15 were sold during the year.
d. The company repaid the current portion of long-term debt during the year.
e. Dividend was declared and partially paid.
2014 2015
Assets
Cash 54 45
Short term investments 95 0
Accounts receivable 45 85
Inventory 52 75
Prepaid general expenses 11 15
Fixed assets under capital lease, net 0 50
Fixed assets, net 165 228
422 498
Liabilities and stockowners' equity
Accounts payable 38 48
Wages payable 12 6
Tax payable 3 5
Dividend payable 0 4
Current portion of long term debt 10 12
Obligations under capital leases 0 50
Long term debt 183 180
Common stock 150 163
Retained earnings 26 30
422 498
2014 2015
Revenues, net 426
Cost of goods sold 310
Gross margin 116
General expenses 30
Wages expenses 42
Depreciation expense 24
Interest expense 11
Loss on sale of fixed assets 3
Gain on sale of securities available for sale -12
Tax expenses 8
106
Net income 10
1. Prepare the statement of cash flows for the year 2015 using the direct method.
2. Reconcile net income and net cash flows from operating activities for the year 2015.