Deck 10: Statement of Cash Flows

Question 1

Use the following information for questions 12-13.
Fables Corp. provided the following information for calendar 2020: Fables adheres to ASPE. $\begin{array}{llr} \text {Proceeds from issuing bonds } &\$300,000\\ \text { Purchase of inventories. } &570,000\\ \text { Purchase of treasury shares} &90,000\\ \text { Purchase of long-term investment } &420,000\\ \text { Dividends paid to preferred shareholders } &60,000\\ \text { Proceeds from issuing preferred shares } &240,000\\ \text {Proceeds from sale of equipment } &60,000\\\end{array}$


-The cash provided by (used in) investing activities during 2020 is

A) $ 60,000.
B) $ (360,000).
C) $ (600,000).
D) $ (660,000).

Answer 1

$ (360,000).

Question 2

Selected information from Hatian Corp.'s 2020 accounting records is as follows: Hatian adheres to ASPE.
$$\begin{array}{|lr|}\hline Proceeds ~from~issuance ~of ~common ~shares & ..........~~~~~\$200,000 \\\hline Froceeds ~from ~issuance ~of ~bonds &..........~~600,000 \\\hline Cash ~dividends ~paid ~on ~common ~shares & ..........~~80,000 \\\hline Cash~ dividends ~paid ~on ~preferred ~shares & ..........~~30,000 \\\hline Purchase ~of~a ~FV-NI ~investment &..........~~60,000 \\\hline Sale ~of ~shares ~to ~officers ~and ~employees & \\\hline ~~~~~~~~~~~NOT included above & ..........~~50,000 \\\hline\end{array}$$

Based on the above information, the cash provided by (used in) financing activities for calendar 2020 is

A) $ 80,000.
B) $ 90,000.
C) $ (110,000).
D) $ 740,000.

Answer 2

$ 740,000.

Question 3

Use the following information for questions 12-13.
Fables Corp. provided the following information for calendar 2020: Fables adheres to ASPE. $\begin{array}{llr} \text {Proceeds from issuing bonds } &\$300,000\\ \text { Purchase of inventories. } &570,000\\ \text { Purchase of treasury shares} &90,000\\ \text { Purchase of long-term investment } &420,000\\ \text { Dividends paid to preferred shareholders } &60,000\\ \text { Proceeds from issuing preferred shares } &240,000\\ \text {Proceeds from sale of equipment } &60,000\\\end{array}$


-The cash provided by financing activities during 2020 is

A) $ 540,000.
B) $ 480,000.
C) $ 390,000.
D) $ 330,000.

Answer 3

$ 390,000.

Question 4

The primary purpose of the statement of cash flows is to provide information

A) about an entity's operating, investing, and financing activities during a period.
B) that is useful in assessing cash flow prospects.
C) about an entity's cash receipts and cash payments during a period.
D) about an entity's ability to meet its obligations, its ability to pay dividends, and its needs for external financing.

Question 5

In a statement of cash flows, which of the following would be reported in the cash flows from investing activities section?

A) issuance of common shares in exchange for a factory building
B) stock dividends received
C) development costs incurred (intangible asset)
D) declaration of cash dividends

Question 6

Use the following information for questions 10-11.
Duncan Corp. purchased a building, paying part of the purchase price in cash and issuing a mortgage note payable to the seller for the balance.
In a statement of cash flows, what amount is included in investing activities for the above transaction?

A) the cash payment
B) the full purchase price
C) zero (but disclosed in the notes)
D) the amount mortgaged

Question 7

Use the following information for questions 18-19.
The statements of financial position for King Lear Corp. at the end of 2020 and 2019 are as follows: $\begin{array}{ll}\text{} & 2020 \quad \quad \quad 2019 & \\\text{Cash ......................................................................................... } & \text{\$75,000 \quad 105,000} \\\text{Accounts receivable (net)..........................................................} & \text{\$180,000 \quad135,000} \\\text{Merchandise inventory..............................................................} & \text{\$210,000 \quad 135,000} \\\text{Prepaid expenses.......................................................................} & \text{\$30,000 \quad 75,000} \\\text{Land..........................................................................................} & \text{\$270,000 \quad 120,000} \\\text{Buildings and equipment...........................................................} & \text{\$270,000 \quad 225,000} \\\text{Accumulated depreciation - buildings and quipment.................} & \text{\$(54,000 ) \quad (24,000)} \\\text{Total Assets..............................................................................} & \text{\$(981,000) \quad (771,000)} \\ \text{} & \quad \quad \quad & \\\text{Accounts payable ...................................................................... } & \text{\$204,000 \quad 165,000} \\\text{Salaries Payable.........................................................................} & \text{\$36,000 \quad54,000} \\\text{Notes Payable - long- term ......................................................} & \text{\ \quad \quad \quad \quad 120,000} \\\text{Mortgage Payable.......................................................................} & \text{\$90,000 \quad } \\\text{Common shares ...............................................................} & \text{\$627,000 \quad 477,000} \\\text{Retained earning ( deficit ) ...........................................................} & \text{\$270,000 \quad 225,000} \\\text{Accumulated depreciation - buildings and quipment.................} & \text{\$24,000 \quad (45,000)} \\\text{Total Liabilities and Shareholders Equite ...... .....................} & \text{\$981,000 \quad 771,000 } \\\end{array}$

During 2020, land was acquired in exchange for common shares (which had a market value of $ 150,000 at the time). All equipment purchased was for cash. Equipment costing $ 15,000 was sold for $ 6,000 cash; book value of the equipment at the time of sale was $ 12,000, and the loss was included in net income. Cash dividends of $ 30,000 were declared and paid during the year. King adheres to ASPE and uses the indirect method when preparing the statement of cash flows.

-The cash provided by (used in) financing activities was

A) $ 90,000.
B) $ (30,000).
C) $ (60,000).
D) $ 0.

Question 8

Cash equivalents include

A) treasury bills, equity investments and long-term bonds.
B) non-equity investments with short maturities and bank overdrafts repayable on demand.
C) treasury bills, commercial paper and all equity investments.
D) treasury bills, commercial paper, and money market funds purchased with excess cash.

Question 9

Use the following information for questions 18-19.
The statements of financial position for King Lear Corp. at the end of 2020 and 2019 are as follows: $\begin{array}{ll}\text{} & 2020 \quad \quad \quad 2019 & \\\text{Cash ......................................................................................... } & \text{\$75,000 \quad 105,000} \\\text{Accounts receivable (net)..........................................................} & \text{\$180,000 \quad135,000} \\\text{Merchandise inventory..............................................................} & \text{\$210,000 \quad 135,000} \\\text{Prepaid expenses.......................................................................} & \text{\$30,000 \quad 75,000} \\\text{Land..........................................................................................} & \text{\$270,000 \quad 120,000} \\\text{Buildings and equipment...........................................................} & \text{\$270,000 \quad 225,000} \\\text{Accumulated depreciation - buildings and quipment.................} & \text{\$(54,000 ) \quad (24,000)} \\\text{Total Assets..............................................................................} & \text{\$(981,000) \quad (771,000)} \\ \text{} & \quad \quad \quad & \\\text{Accounts payable ...................................................................... } & \text{\$204,000 \quad 165,000} \\\text{Salaries Payable.........................................................................} & \text{\$36,000 \quad54,000} \\\text{Notes Payable - long- term ......................................................} & \text{\ \quad \quad \quad \quad 120,000} \\\text{Mortgage Payable.......................................................................} & \text{\$90,000 \quad } \\\text{Common shares ...............................................................} & \text{\$627,000 \quad 477,000} \\\text{Retained earning ( deficit ) ...........................................................} & \text{\$270,000 \quad 225,000} \\\text{Accumulated depreciation - buildings and quipment.................} & \text{\$24,000 \quad (45,000)} \\\text{Total Liabilities and Shareholders Equite ...... .....................} & \text{\$981,000 \quad 771,000 } \\\end{array}$

During 2020, land was acquired in exchange for common shares (which had a market value of $ 150,000 at the time). All equipment purchased was for cash. Equipment costing $ 15,000 was sold for $ 6,000 cash; book value of the equipment at the time of sale was $ 12,000, and the loss was included in net income. Cash dividends of $ 30,000 were declared and paid during the year. King adheres to ASPE and uses the indirect method when preparing the statement of cash flows.

-The cash provided by (used in) investing activities was

A) $ 39,000.
B) $ (54,000).
C) $ (60,000).
D) $ (204,000).

Question 10

Selected information from Regan Ltd.'s 2020 accounting records is as follows: $\begin{array}{llr} \text { Proceeds from sale of land.} &\$300,000\\ \text {Proceeds from long-term borrowings. } &400,000\\ \text { Purchase of plant assets. } &280,000\\ \text { Purchase of inventories. } &850,000\\ \text { Proceeds from issuance of common shares. } &300,000\\\end{array}$
Based on the above information, the cash provided by investing activities for calendar 2020 is

A) $ 20,000.
B) $ 200,000.
C) $ 320,000.
D) $ 400,000.

Question 11

Use the following information for questions 16-17.
Oswald 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: The following additional data were provided for calendar 2020:
1. Dividends declared and paid were $ 24,000.
2. Equipment was sold for $ 30,000. This equipment originally cost $ 44,000, and had a book value of $ 36,000 at the time of sale. The loss on sale was included in "selling and administrative expenses," as was the depreciation expense for the year.
3. Bonds were retired during the year at par .

-On a statement of cash flows for calendar 2020, the cash provided by (used in) by financing activities is

A) $ 6,000.
B) $ 24,000.
C) $ (54,000).
D) $ (30,000).

Question 12

Use the following information for questions 20-21.
Casio adheres to ASPE. Casio Corp.'s transactions for the year ended December 31, 2020 included the following:
1. Purchased land for $ 275,000 cash.
2. Borrowed $ 275,000 from the bank on a long-term note.
3. Sold long-term investments for $ 250,000.
4. Accounts receivable decreased by $ 50,000.
5. Paid cash dividends of $ 300,000.
6. Issued 1,000 common shares for $ 125,000.
7. Purchased machinery and equipment for $ 62,500 cash.
8. Accounts payable increased by $ 100,000.
The cash used in investing activities for 2020 was

A) $ (337,500).
B) $ (187,500).
C) $ (87,500).
D) $ (25,000).

Question 13

The statement of cash flows is required to be included

A) only for financial statements prepared under IFRS.
B) only for financial statements prepared under ASPE.
C) for both financial statements prepared under IFRS and under ASPE.
D) for financial statements prepared under IFRS, but is optional under ASPE.

Question 14

A statement of cash flows generally would NOT include the effects of

A) common shares issued at an amount greater than par value.
B) the purchase of treasury shares.
C) cash dividends paid.
D) stock dividends declared and issued.

Question 15

The information in a statement of cash flows enables stakeholders to assess the

A) amounts, timing and certainty of future cash flows.
B) liquidity and solvency of an entity.
C) change in working capital during the period.
D) reason(s) for the difference between net income and cash flows from financing activities.

Question 16

On a statement of cash flows, additional cash invested by a sole proprietor would be disclosed in

A) operating activities.
B) investing activities.
C) financing activities.
D) both operating and financing activities.

Question 17

Use the following information for questions 16-17.
Oswald 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: The following additional data were provided for calendar 2020:
1. Dividends declared and paid were $ 24,000.
2. Equipment was sold for $ 30,000. This equipment originally cost $ 44,000, and had a book value of $ 36,000 at the time of sale. The loss on sale was included in "selling and administrative expenses," as was the depreciation expense for the year.
3. Bonds were retired during the year at par .

-On a statement of cash flows for calendar 2020, the cash provided by (used in) investing activities is

A) $ 6,000.
B) $ 30,000.
C) $ (36,000).
D) $ (44,000).

Question 18

A successful company's major source of cash should be

A) operating activities.
B) investing activities.
C) financing activities.
D) both operating activities and investing activities.

Question 19

Use the following information for questions 10-11.
Duncan Corp. purchased a building, paying part of the purchase price in cash and issuing a mortgage note payable to the seller for the balance.
In a statement of cash flows, what amount is included in financing activities for the above transaction?

A) the cash payment
B) the full purchase price
C) zero (but disclosed in the notes)
D) the amount mortgaged

Question 20

Which of the following is NOT a significant non-cash transaction?

A) capital (finance) lease obligations
B) conversion of preferred shares to common shares
C) exchange of non-monetary assets
D) purchasing a building with a 10% cash down payment and mortgaging the balance

Question 21

Using the indirect method, an increase in inventory would be reported in a statement of cash flows as a(n)

A) addition to net income in calculating cash flows from operating activities.
B) deduction from net income in calculating cash flows from operating activities.
C) cash flow from investing activities.
D) cash flow from financing activities.

Question 22

Use the following information for questions 20-21.
Casio adheres to ASPE. Casio Corp.'s transactions for the year ended December 31, 2020 included the following:
1. Purchased land for $ 275,000 cash.
2. Borrowed $ 275,000 from the bank on a long-term note.
3. Sold long-term investments for $ 250,000.
4. Accounts receivable decreased by $ 50,000.
5. Paid cash dividends of $ 300,000.
6. Issued 1,000 common shares for $ 125,000.
7. Purchased machinery and equipment for $ 62,500 cash.
8. Accounts payable increased by $ 100,000.
The cash provided by (used in) financing activities for 2020 was

A) $ 12,500.
B) $ 100,000.
C) $ (225,000).
D) $ (250,000).

Question 23

Use the following information for questions 24-25.
Malcolm Corp.'s statements of financial position at December 31, 2020 and 2019 and information relating to 2020 activities are presented below: $\begin{array}{ll} &\text{ {December 31,} } \\&\text{ \underline{\text{ 2020 }} } &\text{\underline{\text{ 2019 }} } \\\text{ {\underline{\text{ Assets}} }} \\ \quad\text{ Cash } .......................................................................... & \$ 110,000 & \$ 50,000 \\\quad\text{ Temporary investments }............................................. & 150,000 & - \\\quad\text{ Accounts receivable (net) } ...........................................& 255,000 & 255,000 \\\quad\text{ Inventory } .................................................................... & 345,000 & 300,000 \\\quad\text{ Long-term investments } ............................................... & 100,000 & 150,000 \\\quad\text{ Property, plant and equipment } ................................... & 850,000 & 500,000 \\\quad\text{ Accumulated depreciation } ...........................................& (225,000) & (225,000) \\\quad\text{Goodwill } ....................................................................... & 45,000 & 50,000 \\\quad\quad\text{ Total assets } & \underline{\text{ \$ 1,630,000 }} & \underline{\text{ \$ 1,080,000}} \\\\\text{ { \underline{\text{ Liabilities and Shareholders' Equity }} } } \\\quad\text{ Accounts payable }........................................................... & \$ 415,000 & \$ 360,000 \\\quad\text{ Long-term note payable} ................................................. & 145,000 & - \\\quad\text{ Common shares} .............................................................. & 600,000 & 475,000 \\\quad\text{ Retained earnings } ........................................................& \underline{\text{ 470,000 }}& \underline{\text{ 245,000 }} \\\quad\text{ Total liabilities and shar eholders' equity } ...................... & \underline{\text{\underline{\text{ \$1,630,000 }} }}& \underline{\text{ \underline{\text{ \$1,080,000}} }} \\ \end{array}$ Other information relating to 2020 activities:
1. Net income was $ 375,000.
2. Cash dividends of $ 150,000 were declared and paid.
3. Equipment costing $ 250,000, with a book value of $ 80,000, was sold for $ 90,000.
4. A long-term investment was sold for $ 80,000. There were no other transactions affecting long-term investments.
5. 5,000 common shares were issued for $ 25 a share.
6. Temporary investments consist of treasury bills maturing on June 30, 2021.

-The cash provided by financing activities in 2020 was

A) $ 420,000.
B) $ 270,000.
C) $ 130,000.
D) $ 120,000.

Question 24

A fire damaged Francisco Corp.'s office building. The company received $ 600,000 as a settlement from their insurance company, which was $ 180,000 less than the book value of the building. Their income tax rate is 25%. On the statement of cash flows (indirect method), the receipt from the insurance company should

A) be shown as an addition to net income of $ 420,000.
B) be shown as an inflow from investing activities of $ 420,000.
C) be shown as an inflow from investing activities of $ 600,000.
D) be shown as an inflow from investing activities of $ 450,000.

Question 25

Tampa Ltd.'s prepaid insurance balance was $ 20,000 at December 31, 2020 and $ 10,000 at December 31, 2019. Insurance expense was $ 8,000 for 2020 and $ 6,000 for 2019. How much cash paid for insurance would be reported in Tampa 2020 statement of cash flows prepared using the direct method?

A) $ 22,000
B) $ 18,000
C) $ 12,000
D) $ 8,000

Question 26

Use the following information for questions 22-23.
ecaHecaRoss Corp.'s transactions for calendar 2020 included the following:
1. Acquired 50% of Lennox Ltd.'s common shares for $ 90,000 cash.
2. Issued 5,000 preferred shares in exchange for land with a fair value of $ 160,000.
3. Issued 11% bonds, par value $ 200,000, due 2020, for $ 196,000 cash.
4. Purchased a patent for $ 110,000 cash.
5. Borrowed $ 90,000 from Bank A.
6. Paid $ 60,000 toward a bank loan with Bank B.
7. Sold long-term investments for $ 398,000.
The cash provided by investing activities in 2020 was

A) $ 148,000.
B) $ 198,000.
C) $ 238,000.
D) $ 308,000.

Question 27

When preparing a statement of cash flows, a decrease in prepaid insurance during a period would require which of the following adjustments in determining cash flows from operating activities? $\text { Indirect Method\quad Direct Method }$

A) $\begin{array}{ll}\text { increase } &\quad\quad \text { decrease } \\\end{array}$
B) $\begin{array}{ll}\text {decrease } &\quad\quad \text { increase } \\\end{array}$
C) $\begin{array}{ll}\text { increase } &\quad\quad \text { increase } \\\end{array}$
D) $\begin{array}{ll}\text {decrease } &\quad\quad \text { decrease }\end{array}$

Question 28

In calculating cash flows from operating activities, a decrease in accounts payable during a period

A) means that accrual basis income is less than cash basis income.
B) requires an addition to net income under the indirect method.
C) requires an increase to cost of goods sold under the direct method.
D) requires a decrease to cost of goods sold under the direct method.

Question 29

When preparing a statement of cash flows (indirect method), which of the following is NOT an adjustment to reconcile net income to cash flows from operating activities?

A) an increase in prepaid expenses
B) an increase in bonds payable
C) a decrease in income taxes payable
D) depreciation expense

Question 30

When preparing a statement of cash flows, an increase in accounts payable during a period would require which of the following adjustments in determining cash flows from operating activities? $\text { Indirect Method\quad Direct Method }$

A) $\begin{array}{ll}\text { increase } &\quad\quad \text { decrease } \\\end{array}$
B) $\begin{array}{ll}\text {decrease } &\quad\quad \text { increase } \\\end{array}$
C) $\begin{array}{ll}\text { increase } &\quad\quad \text { increase } \\\end{array}$
D) $\begin{array}{ll}\text {decrease } &\quad\quad \text { decrease }\end{array}$

Question 31

Use the following information for questions 24-25.
Malcolm Corp.'s statements of financial position at December 31, 2020 and 2019 and information relating to 2020 activities are presented below: $\begin{array}{ll} &\text{ {December 31,} } \\&\text{ \underline{\text{ 2020 }} } &\text{\underline{\text{ 2019 }} } \\\text{ {\underline{\text{ Assets}} }} \\ \quad\text{ Cash } .......................................................................... & \$ 110,000 & \$ 50,000 \\\quad\text{ Temporary investments }............................................. & 150,000 & - \\\quad\text{ Accounts receivable (net) } ...........................................& 255,000 & 255,000 \\\quad\text{ Inventory } .................................................................... & 345,000 & 300,000 \\\quad\text{ Long-term investments } ............................................... & 100,000 & 150,000 \\\quad\text{ Property, plant and equipment } ................................... & 850,000 & 500,000 \\\quad\text{ Accumulated depreciation } ...........................................& (225,000) & (225,000) \\\quad\text{Goodwill } ....................................................................... & 45,000 & 50,000 \\\quad\quad\text{ Total assets } & \underline{\text{ \$ 1,630,000 }} & \underline{\text{ \$ 1,080,000}} \\\\\text{ { \underline{\text{ Liabilities and Shareholders' Equity }} } } \\\quad\text{ Accounts payable }........................................................... & \$ 415,000 & \$ 360,000 \\\quad\text{ Long-term note payable} ................................................. & 145,000 & - \\\quad\text{ Common shares} .............................................................. & 600,000 & 475,000 \\\quad\text{ Retained earnings } ........................................................& \underline{\text{ 470,000 }}& \underline{\text{ 245,000 }} \\\quad\text{ Total liabilities and shar eholders' equity } ...................... & \underline{\text{\underline{\text{ \$1,630,000 }} }}& \underline{\text{ \underline{\text{ \$1,080,000}} }} \\ \end{array}$ Other information relating to 2020 activities:
1. Net income was $ 375,000.
2. Cash dividends of $ 150,000 were declared and paid.
3. Equipment costing $ 250,000, with a book value of $ 80,000, was sold for $ 90,000.
4. A long-term investment was sold for $ 80,000. There were no other transactions affecting long-term investments.
5. 5,000 common shares were issued for $ 25 a share.
6. Temporary investments consist of treasury bills maturing on June 30, 2021.

-The cash used in investing activities in 2020 was

A) $ 580,000.
B) $ 455,000.
C) $ 430,000.
D) $ 420,000.

Question 32

Use the following information for questions 22-23.
ecaHecaRoss Corp.'s transactions for calendar 2020 included the following:
1. Acquired 50% of Lennox Ltd.'s common shares for $ 90,000 cash.
2. Issued 5,000 preferred shares in exchange for land with a fair value of $ 160,000.
3. Issued 11% bonds, par value $ 200,000, due 2020, for $ 196,000 cash.
4. Purchased a patent for $ 110,000 cash.
5. Borrowed $ 90,000 from Bank A.
6. Paid $ 60,000 toward a bank loan with Bank B.
7. Sold long-term investments for $ 398,000.
The cash provided by financing activities in 2020 was

A) $ 136,000.
B) $ 226,000.
C) $ 286,000.
D) $ 296,000.

Question 33

When preparing a statement of cash flows, a decrease in accounts receivable during a period would cause which one of the following adjustments in calculating cash flows from operating activities?
$~~~~~~~~$ Direct Method $~~~~~~~~$ Indirect Method

A) $~~~~~~~~$ increase $~~~~~~~~$ $~~~~~~~~$ decrease
B) $~~~~~~~~$ decrease $~~~~~~~~$$~~~~~~~~$ increase
C) $~~~~~~~~$ increase $~~~~~~~~$ $~~~~~~~~$ increase
D) $~~~~~~~~$ decrease $~~~~~~~~$$~~~~~~~~$ decrease

Question 34

Oyster Corp. reports its income from investments by the equity method and recognized income of $ 25,000 from its investment in Pearl Ltd. during the current year, even though no dividends were declared or paid by Pearl during the year. On Oyster's statement of cash flows (indirect method), the $ 25,000 should

A) not be shown.
B) be shown as cash inflow from investing activities.
C) be shown as cash outflow from financing activities.
D) be shown as a deduction from net income in the cash flows from operating activities section.

Question 35

When preparing a statement of cash flows using the direct method, a net loss reported on the income statement will

A) automatically result in a cash outflow from operating activities.
B) be included in financing activities.
C) be disclosed as a note to the statement of cash flows.
D) not be included on the statement at all.

Question 36

When preparing a statement of cash flows (indirect method), an increase in ending inventory over beginning inventory will result in an adjustment to net income because

A) cash was increased while cost of goods sold was decreased.
B) acquisition of inventory is an investment activity.
C) inventory purchased during the period was less than inventory sold, resulting in a net cash increase.
D) cost of goods sold on an accrual basis is lower than on a cash basis.

Question 37

Use the following information for questions 32-33.
Oswald 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:

$\begin{array}{ll}\text{} & \quad \quad \quad \quad \quad Dec ~~31/20 \quad \quad Dec ~~31/19 & \\\text{Cash ......................................................................................... } & \quad \quad \quad \quad \quad \text{\$51,000 } \quad \quad \quad\text{\$24,000 } \\\text{Accounts receivable ..........................................................} & \quad \quad \quad \quad \quad \text{\ 45,000 \quad \quad \quad 27,000} \\\text{Merchandise inventory..............................................................} & \quad \quad \quad \quad \quad \text{\ 48,000 \quad \quad \quad 60,000} \\\text{Property, plant and equ ipment.......................................................................} & \quad \text{\$76,000 } \quad \quad \quad \text{\$120,000 } \\\text{ \quad\quad Less accumulated depreciation...............................} & \text{\ \(\underline{\text{(40,000) }}\) \(\underline{\text{(36,000) }}\) \(\underline{\text{(38,000) }}\) \(\underline{\text{(82,000) }}\)} \\\text{ Total Assets.........................................................} & \quad \quad \quad \quad \quad \text{\$\(\underline{\text{(180,000) }}\) } \quad \quad \quad \text{} \text{\$\(\underline{\text{(193,000) }}\) } \\ \text{} & \quad \quad \quad & \\\text{Accounts payabl.................} & \quad \quad \quad \quad \quad \text{\$22,000} \quad \quad \quad \text{\$12,000} \\\text{ Income taxes payable................................................................} & \quad \quad \quad \quad \quad \text{\ 44,000 \quad \quad ~~~~49,000} \\ \text{Bonds payable ................................................ } & \quad \quad\quad \quad \quad \text{\ 45,000 \quad \quad \quad 75,000} \\\text{ Common shares...................................} & \quad \quad \quad \quad \quad \text{\ 27,000 \quad \quad \quad \quad 27,000} \\\text{Retained earnings.....................................} & \quad \quad \quad \quad \quad \text{\$ \(\underline{\text{ 42,000 }}\) \quad \quad \quad \(\underline{\text{ 30,000}}\) } \\\text{Total Liabilities \& Shar eholders' Equ ity...................} & \quad \quad \quad \quad \quad \text{\$180,000 } \quad \quad \quad \quad \text{\$193,000 } \\ \text{} & \\ \text{} & & \\ \text{} & Income Statement & \\ \text{} & Year endebt December 31,2020 & \\ \\ \\\text{Sales ............................................................................................................. } & \text{\$1,050,000 \quad } \\\text{Cost of sales................................................................................................... } & \text{\ \(\underline{\text{ 894,000 }}\) \quad } \\\text{Gross profit.................................................................................................... } & \text{\ 156,000 \quad } \\\text{Selling and administrative expenses................................................................ } & \text{\ \(\underline{\text{ 99,000 }}\) \quad } \\\text{Income from operations.................................................................................. } & \text{\ 57,000 \quad } \\\text{Intersts expense.............................................................................................. } & \text{\ \(\underline{\text{ 9,000 }}\) \quad } \\\text{Income before taxes ........................................................................................ } & \text{\ 40,000 \quad } \\\text{Income taxes................................................................................................. } & \text{\ \(\underline{\text{ 12,000 }}\) \quad } \\\text{Net income...................................................................................................... } & \text{\$ \(\underline{\text{ 36,000 }}\) \quad } \\ \end{array}$

The following additional data were provided for calendar 2020:
1. Dividends declared and paid were $ 24,000.
2. Equipment was sold for $ 30,000. This equipment originally cost $ 44,000, and had a book value of $ 36,000 at the time of sale. The loss on sale was included in "selling and administrative expenses," as was the depreciation expense for the year.
3. Bonds were retired during the year at par.

-On a statement of cash flows for calendar 2020, the cash received from customers is

A) $ 1,068,000.
B) $ 1,055,000.
C) $ 1,050,000.
D) $ 1,032,000.

Question 38

Use the following information for questions 32-33.
Oswald 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:

$\begin{array}{ll}\text{} & \quad \quad \quad \quad \quad Dec ~~31/20 \quad \quad Dec ~~31/19 & \\\text{Cash ......................................................................................... } & \quad \quad \quad \quad \quad \text{\$51,000 } \quad \quad \quad\text{\$24,000 } \\\text{Accounts receivable ..........................................................} & \quad \quad \quad \quad \quad \text{\ 45,000 \quad \quad \quad 27,000} \\\text{Merchandise inventory..............................................................} & \quad \quad \quad \quad \quad \text{\ 48,000 \quad \quad \quad 60,000} \\\text{Property, plant and equ ipment.......................................................................} & \quad \text{\$76,000 } \quad \quad \quad \text{\$120,000 } \\\text{ \quad\quad Less accumulated depreciation...............................} & \text{\ \(\underline{\text{(40,000) }}\) \(\underline{\text{(36,000) }}\) \(\underline{\text{(38,000) }}\) \(\underline{\text{(82,000) }}\)} \\\text{ Total Assets.........................................................} & \quad \quad \quad \quad \quad \text{\$\(\underline{\text{(180,000) }}\) } \quad \quad \quad \text{} \text{\$\(\underline{\text{(193,000) }}\) } \\ \text{} & \quad \quad \quad & \\\text{Accounts payabl.................} & \quad \quad \quad \quad \quad \text{\$22,000} \quad \quad \quad \text{\$12,000} \\\text{ Income taxes payable................................................................} & \quad \quad \quad \quad \quad \text{\ 44,000 \quad \quad ~~~~49,000} \\ \text{Bonds payable ................................................ } & \quad \quad\quad \quad \quad \text{\ 45,000 \quad \quad \quad 75,000} \\\text{ Common shares...................................} & \quad \quad \quad \quad \quad \text{\ 27,000 \quad \quad \quad \quad 27,000} \\\text{Retained earnings.....................................} & \quad \quad \quad \quad \quad \text{\$ \(\underline{\text{ 42,000 }}\) \quad \quad \quad \(\underline{\text{ 30,000}}\) } \\\text{Total Liabilities \& Shar eholders' Equ ity...................} & \quad \quad \quad \quad \quad \text{\$180,000 } \quad \quad \quad \quad \text{\$193,000 } \\ \text{} & \\ \text{} & & \\ \text{} & Income Statement & \\ \text{} & Year endebt December 31,2020 & \\ \\ \\\text{Sales ............................................................................................................. } & \text{\$1,050,000 \quad } \\\text{Cost of sales................................................................................................... } & \text{\ \(\underline{\text{ 894,000 }}\) \quad } \\\text{Gross profit.................................................................................................... } & \text{\ 156,000 \quad } \\\text{Selling and administrative expenses................................................................ } & \text{\ \(\underline{\text{ 99,000 }}\) \quad } \\\text{Income from operations.................................................................................. } & \text{\ 57,000 \quad } \\\text{Intersts expense.............................................................................................. } & \text{\ \(\underline{\text{ 9,000 }}\) \quad } \\\text{Income before taxes ........................................................................................ } & \text{\ 40,000 \quad } \\\text{Income taxes................................................................................................. } & \text{\ \(\underline{\text{ 12,000 }}\) \quad } \\\text{Net income...................................................................................................... } & \text{\$ \(\underline{\text{ 36,000 }}\) \quad } \\ \end{array}$

The following additional data were provided for calendar 2020:
1. Dividends declared and paid were $ 24,000.
2. Equipment was sold for $ 30,000. This equipment originally cost $ 44,000, and had a book value of $ 36,000 at the time of sale. The loss on sale was included in "selling and administrative expenses," as was the depreciation expense for the year.
3. Bonds were retired during the year at par.

-On a statement of cash flows for calendar 2020, the cash paid for income taxes is

A) $ 17,000.
B) $ 12,000.
C) $ 7,000.
D) $ 5,000.

Question 39

An analysis of the machinery accounts of Polonius Ltd. during 2020 follows: $\begin{array}{ll}\text{} & \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad Accumulated \quad \quad \quad\quad Book & \\\text{} & \quad \text{ \(\underline{\text{Machinery }}\) } \quad \quad \quad \quad \text{\(\underline{\text{ Dapraciation }}\) } \quad\quad\quad \text{\(\underline{\text{ Value }}\) } & \\\text{Balance, Jan 1,2020.............................................................. } & \quad \quad \text{\$500,000 } \quad \quad \quad \quad \quad \text{\$125,000 } \quad \quad\quad \quad \text{\$375,000 } \\\text{Purchases of new machinery in ......................................} & \quad \quad \text{\ \quad \quad \quad \quad \quad \quad \quad\quad \quad \text{ } } \\\quad \quad \quad \text{2020 for cash ....................................................} & \quad \quad 200,000 \text{\ \quad \quad \quad \quad \quad \quad — \quad \quad\quad\quad\quad \quad \text{200,000} } \\\text{2020 depreciation.......................................................................} & \quad \quad \text{\ — \quad \quad \quad \quad \quad \quad \quad \(\underline{\text{ 100,000 }}\) \quad \quad\quad \quad \(\underline{\text{ (100,000) }}\) } \\\text{ Balance, Dec 31, 2020 ...............................} & \quad \quad \text{\$700,000 } \quad \quad \quad \quad \quad \text{\$225,000 } \quad \quad\quad \quad \text{\$475,000 } \\\end{array}$


The information concerning Polonius's machinery accounts should be shown in their statement of cash flows (indirect method) for the year ended December 31, 2020, as a(n)

A) subtraction from net income of $ 100,000 and a $ 200,000 decrease in cash flows from financing activities.
B) addition to net income of $ 100,000 and a $ 200,000 decrease in cash flows from investing activities.
C) $ 100,000 increase in cash flows from financing activities.
D) $ 200,000 decrease in cash flows from investing activities.

Question 40

Noah Inc., a service organization, reports the following for calendar 2020: $\begin{array}{ll} \text{Service revenue.................................................................................. } & \text{\$525,000 \quad } \\\text{Cash received from customers .........................................................} & \text{\$450,000 \quad } \\\text{Interest payments (on long-term debt)................................................} & \text{\$12,000 \quad } \\\text{Salar ies and wages paid to employees...................................................} & \text{\$157,000 \quad } \\\text{Purchase of new equipment for cash..............................................} & \text{\$240,000 \quad } \\\text{Cash dividends paid.......................................................................} & \text{\$30,000 \quad } \\\text{Payments for office rental \& general expenses.................................} & \text{\$210,000 \quad } \\\text{Income taxes paid ...........................................................................} & \text{\$22,500 \quad } \\\text{Net incom........................................................................................} & \text{\$67,500 \quad } \\\end{array}$


Noah adheres to ASPE. Based on the above information, and using the direct method, the cash provided by (used in) operating activities to be reported on Noah's 2020 statement of cash flows is

A) $ 48,000.
B) $ 60,000.
C) $ 105,000.
D) $ (135,000).

Question 41

With regard to disclosures required under IFRS and ASPE, which of the following statements is INCORRECT?

A) IFRS requires separate disclosure of taxes on income.
B) IFRS requires separate disclosure of interest received and paid and dividends received and paid.
C) ASPE does not require reporting and explanation of the amount of cash and cash equivalents that have restrictions on their use.
D) ASPE does not require separate disclosure of taxes on income.

Question 42

Use the following information for questions.
Financial statements for Bernard Corp. are presented below: \text{ } \\

$\begin{array}{ll}&&\text{\textbf{ BERNARD CORP. } } \\&&\text{ \textbf{ Statement of Financial Position } } \\&&\text{ \textbf{ January 1, 2020 } } \\\\\text{ \underline{\text{ Assets }} } & &\text{\underline{\text{ Liabilities and Equity }} } & \\\text{ Cash} ......................................... & \$ 160,000 & \text{ Accounts payable } ................................... & \$ 76,000 \\\text{ Accounts receivable } ................& 144,000 & & \\\text{ Buildings and equipment }........ & 600,000 & & \\\text{ Accumulated depreciation} \\\text{ buildings and equipment } ........ & (200,000) & \text{ Common shares }........................................ & 460,000 \\\text{ Patents } ....................................& \underline{\text{ 72,000}} & \text{ Retained earnings } .................................... & \underline{\text{ 240,000}} \\\text{ Total Assets }............................& \underline{\text{ \$776,000 }} & \text{ Total Liabilities } \\ && \&\text{ Shareholders' Equity ....} &\underline{\text{ \$ 776,000}} \\ \end{array}$ BERNARD CORP. Total assets on the December 31, 2020 statement of financial position were $ 1,108,000. Accumulated depreciation on the equipment sold was $ 56,000.

-The book value of the buildings and equipment at December 31, 2020 was

A) $ 508,000.
B) $ 520,000.
C) $ 588,000.
D) $ 712,000.

Question 43

Ophelia Ltd. reported retained earnings at December 31, 2019 of $ 270,000, and at December 31, 2020, $ 218,000. Net income for calendar 2020 was $ 187,500. During 2020, a stock dividend was declared and distributed, which increased the common shares account by $ 116,500. As well, a cash dividend was declared and paid during the year. The stock dividend should be reported on the statement of cash flows as

A) an outflow from operating activities of $ 116,500.
B) an outflow from financing activities of $ 116,500.
C) an outflow from investing activities of $ 116,500.
D) Stock dividends are not shown on a statement of cash flows.

Question 44

Use the following information for questions.
Financial statements for Bernard Corp. are presented below: \text{ } \\

$\begin{array}{ll}&&\text{\textbf{ BERNARD CORP. } } \\&&\text{ \textbf{ Statement of Financial Position } } \\&&\text{ \textbf{ January 1, 2020 } } \\\\\text{ \underline{\text{ Assets }} } & &\text{\underline{\text{ Liabilities and Equity }} } & \\\text{ Cash} ......................................... & \$ 160,000 & \text{ Accounts payable } ................................... & \$ 76,000 \\\text{ Accounts receivable } ................& 144,000 & & \\\text{ Buildings and equipment }........ & 600,000 & & \\\text{ Accumulated depreciation} \\\text{ buildings and equipment } ........ & (200,000) & \text{ Common shares }........................................ & 460,000 \\\text{ Patents } ....................................& \underline{\text{ 72,000}} & \text{ Retained earnings } .................................... & \underline{\text{ 240,000}} \\\text{ Total Assets }............................& \underline{\text{ \$776,000 }} & \text{ Total Liabilities } \\ && \&\text{ Shareholders' Equity ....} &\underline{\text{ \$ 776,000}} \\ \end{array}$ BERNARD CORP. Total assets on the December 31, 2020 statement of financial position were $ 1,108,000. Accumulated depreciation on the equipment sold was $ 56,000.

-The balance in the Common Shares account at December 31, 2020 was

A) $ 260,000.
B) $ 400,000.
C) $ 460,000.
D) $ 620,000.

Question 45

The statements of financial position for King Lear Corp. at the end of 2020 and 2019 are as follows:
$\begin{array}{ll}\text{} & 2020 \quad \quad \quad 2019 & \\\text{Cash ......................................................................................... } & \text{\$75,000 \quad 105,000} \\\text{Accounts receivable (net)..........................................................} & \text{\$180,000 \quad135,000} \\\text{Merchandise inventory..............................................................} & \text{\$210,000 \quad 135,000} \\\text{Prepaid expenses.......................................................................} & \text{\$30,000 \quad 75,000} \\\text{Land..........................................................................................} & \text{\$270,000 \quad 120,000} \\\text{Buildings and equipment...........................................................} & \text{\$270,000 \quad 225,000} \\\text{Accumulated depreciation - buildings and quipment.................} & \text{\$(54,000 ) \quad (24,000)} \\\text{Total Assets..............................................................................} & \text{\$(981,000) \quad (771,000)} \\ \text{} & \quad \quad \quad & \\\text{Accounts payable ...................................................................... } & \text{\$204,000 \quad 165,000} \\\text{Salaries Payable.........................................................................} & \text{\$36,000 \quad54,000} \\\text{Notes Payable - long- term ......................................................} & \text{\ \quad \quad \quad \quad 120,000} \\\text{Mortgage Payable.......................................................................} & \text{\$90,000 \quad } \\\text{Common shares ...............................................................} & \text{\$627,000 \quad 477,000} \\\text{Retained earning ( deficit ) ...........................................................} & \text{\$270,000 \quad 225,000} \\\text{Accumulated depreciation - buildings and quipment.................} & \text{\$24,000 \quad (45,000)} \\\text{Total Liabilities and Shareholders Equite ...... .....................} & \text{\$981,000 \quad 771,000 } \\\end{array}$

During 2020, land was acquired in exchange for common shares (which had a market value of $ 150,000 at the time). All equipment purchased was for cash. Equipment costing $ 15,000 was sold for $ 6,000 cash; book value of the equipment at the time of sale was $ 12,000, and the loss was included in net income. Cash dividends of $ 30,000 were declared and paid during the year. King adheres to ASPE and uses the indirect method when preparing the statement of cash flows. The cash provided by operating activities for calendar 2020 was

A) $ 72,000.
B) $ 78,000.
C) $ 84,000.
D) $ 99,000.

Question 46

During 2020, Olivier Corp., which uses the allowance method of accounting for doubtful accounts, recorded bad debts expense of $ 25,000. As well, the corporation wrote off uncollectible accounts receivable of $ 9,000. As a result of these transactions, their cash flows from operating activities would be calculated (indirect method) by adjusting net income with a

A) $ 25,000 increase.
B) $ 9,000 increase.
C) $ 16,000 increase.
D) $ 34,000 decrease.

Question 47

Free cash flow is

A) the cash flows from operating activities reported on the statement of cash flows.
B) the discretionary cash that an entity has available for increasing capacity, acquiring new investments, paying dividends, and retiring debt.
C) the discretionary cash that an entity has available for increasing capacity, selling off investments, paying dividends, and incurring new debt.
D) the cash flows from operating activities reported on the statement of cash flows increased by the capital expenditures that are needed to sustain the current level of operations.

Question 48

Macbeth Corp.'s comparative statements of financial position at December 31, 2020 and 2019 reported accumulated depreciation balances of $ 960,000 and $ 720,000, respectively. Equipment with a cost of $ 60,000 and a book value of $ 48,000 was the only equipment sold in 2020. Therefore, the depreciation expense for 2020 was

A) $ 228,000.
B) $ 240,000.
C) $ 252,000.
D) $ 264,000.

Question 49

Hamlet Ltd. adheres to ASPE. On Hamlet Ltd.'s statement of cash flows (indirect method) for calendar 2020, cash flows from operating activities were reported at $ 154,000. The statement included the following items: depreciation on plant assets of $ 60,000; impairment of goodwill of $ 10,000; and cash dividends paid of $ 72,000. Based only on the information given above, Hamlet's net income for 2020 was

A) $ 12,000.
B) $ 84,000.
C) $ 154,000.
D) $ 214,000.

Question 50

During calendar 2020, Marcellus Inc. sold equipment for $ 168,000. The equipment had cost $ 252,000 and had a book value of $ 144,000 at the time of sale. Accumulated Depreciation-Equipment was $ 688,000 at Dec 31, 2019 and $ 736,000 at Dec 31, 2020. Therefore, Depreciation Expense (Equipment) for 2020 was

A) $ 60,000.
B) $ 96,000.
C) $ 156,000.
D) $ 192,000.

Question 51

Use the following information for questions.
Financial statements for Bernard Corp. are presented below: \text{ } \\

$\begin{array}{ll}&&\text{\textbf{ BERNARD CORP. } } \\&&\text{ \textbf{ Statement of Financial Position } } \\&&\text{ \textbf{ January 1, 2020 } } \\\\\text{ \underline{\text{ Assets }} } & &\text{\underline{\text{ Liabilities and Equity }} } & \\\text{ Cash} ......................................... & \$ 160,000 & \text{ Accounts payable } ................................... & \$ 76,000 \\\text{ Accounts receivable } ................& 144,000 & & \\\text{ Buildings and equipment }........ & 600,000 & & \\\text{ Accumulated depreciation} \\\text{ buildings and equipment } ........ & (200,000) & \text{ Common shares }........................................ & 460,000 \\\text{ Patents } ....................................& \underline{\text{ 72,000}} & \text{ Retained earnings } .................................... & \underline{\text{ 240,000}} \\\text{ Total Assets }............................& \underline{\text{ \$776,000 }} & \text{ Total Liabilities } \\ && \&\text{ Shareholders' Equity ....} &\underline{\text{ \$ 776,000}} \\ \end{array}$ BERNARD CORP. Total assets on the December 31, 2020 statement of financial position were $ 1,108,000. Accumulated depreciation on the equipment sold was $ 56,000.

-When the equipment was sold, the Buildings and Equipment account was credited with

A) $ 48,000.
B) $ 56,000.
C) $ 80,000.
D) $ 104,000.

Question 52

Downsview Corp. reported net income for calendar 2020 of $ 375,000. Additional information follows: $\begin{array}{ll} \text { Depreciation on property, plant and equipment } & \$ 187,500 \\\text { debts expense } & 68,750 \\\text { Purchase of equipment} & 31,250 \\ \text { t paid on long-ter } m \text { bonds} &18,750 \\\text { sale of equinment } &106,250 \\\end{array}$ Based on the above information, the cash provided by operating activities (indirect method) for calendar 2020 is

A) $ 706,250.
B) $ 737,500.
C) $ 756,250.
D) $ 787,500.

Question 53

Use the following information for questions.
During calendar 2020, Laertes Corp. sold equipment for $ 70,000. The equipment had cost $ 100,000 and had a book value of $ 52,000 at the time of sale. Data from their comparative statements of financial position are: $\begin{array}{lrr}&\operatorname{Dec} 31 / 20&\operatorname{Dec} 31 / 19\\\text { Equipment } & \$ 720,000 & \$ 650,000 \\\text { Accumulated Depreciation } & 210,000 & 190,000\end{array}$

-Depreciation expense for 2020 was

A) $ 86,000.
B) $ 68,000.
C) $ 18,000.
D) $ 12,000.

Question 54

Use the following information for questions.
Financial statements for Bernard Corp. are presented below: \text{ } \\

$\begin{array}{ll}&&\text{\textbf{ BERNARD CORP. } } \\&&\text{ \textbf{ Statement of Financial Position } } \\&&\text{ \textbf{ January 1, 2020 } } \\\\\text{ \underline{\text{ Assets }} } & &\text{\underline{\text{ Liabilities and Equity }} } & \\\text{ Cash} ......................................... & \$ 160,000 & \text{ Accounts payable } ................................... & \$ 76,000 \\\text{ Accounts receivable } ................& 144,000 & & \\\text{ Buildings and equipment }........ & 600,000 & & \\\text{ Accumulated depreciation} \\\text{ buildings and equipment } ........ & (200,000) & \text{ Common shares }........................................ & 460,000 \\\text{ Patents } ....................................& \underline{\text{ 72,000}} & \text{ Retained earnings } .................................... & \underline{\text{ 240,000}} \\\text{ Total Assets }............................& \underline{\text{ \$776,000 }} & \text{ Total Liabilities } \\ && \&\text{ Shareholders' Equity ....} &\underline{\text{ \$ 776,000}} \\ \end{array}$ BERNARD CORP. Total assets on the December 31, 2020 statement of financial position were $ 1,108,000. Accumulated depreciation on the equipment sold was $ 56,000.

-The balance in the Accounts Payable account at December 31, 2020 was

A) $ 148,000.
B) $ 108,000.
C) $ 44,000.
D) $ 32,000.

Question 55

Horatio Corp. sold some of its plant assets during calendar 2020 for $ 21,000 cash. The original cost of the assets was $ 150,000, and the accumulated depreciation to the date of sale was $ 140,000. This transaction should be shown on Horatio's 2020 statement of cash flows (indirect method) as a(n)

A) deduction from net income of $ 11,000 and a $ 10,000 cash inflow from financing activities.
B) addition to net income of $ 11,000 and a $ 21,000 cash inflow from investing activities.
C) deduction from net income of $ 11,000 and a $ 21,000 cash inflow from investing activities.
D) addition to net income of $ 21,000.

Question 56

Marcus Ltd. sold equipment during calendar 2020 for $ 28,500 cash. The original cost of the equipment was $ 69,000, and the accumulated depreciation to the date of sale was $ 36,750. This transaction should be shown on Marcus' 2020 statement of cash flows (indirect method) as a(n)

A) addition to net income of $ 3,750 and a $ 28,500 cash inflow from investing activities.
B) deduction from net income of $ 3,750 and a $ 32,250 cash inflow from investing activities.
C) deduction from net income of $ 3,750 and a $ 28,500 cash inflow from investing activities.
D) addition to net income of $ 3,750 and a $ 28,500 cash inflow from financing activities.

Question 57

Use the following information for questions.
Financial statements for Bernard Corp. are presented below: \text{ } \\

$\begin{array}{ll}&&\text{\textbf{ BERNARD CORP. } } \\&&\text{ \textbf{ Statement of Financial Position } } \\&&\text{ \textbf{ January 1, 2020 } } \\\\\text{ \underline{\text{ Assets }} } & &\text{\underline{\text{ Liabilities and Equity }} } & \\\text{ Cash} ......................................... & \$ 160,000 & \text{ Accounts payable } ................................... & \$ 76,000 \\\text{ Accounts receivable } ................& 144,000 & & \\\text{ Buildings and equipment }........ & 600,000 & & \\\text{ Accumulated depreciation} \\\text{ buildings and equipment } ........ & (200,000) & \text{ Common shares }........................................ & 460,000 \\\text{ Patents } ....................................& \underline{\text{ 72,000}} & \text{ Retained earnings } .................................... & \underline{\text{ 240,000}} \\\text{ Total Assets }............................& \underline{\text{ \$776,000 }} & \text{ Total Liabilities } \\ && \&\text{ Shareholders' Equity ....} &\underline{\text{ \$ 776,000}} \\ \end{array}$ BERNARD CORP. Total assets on the December 31, 2020 statement of financial position were $ 1,108,000. Accumulated depreciation on the equipment sold was $ 56,000.

-The balance in the Retained Earnings account at December 31, 2020 was

A) $ 500,000.
B) $ 440,000.
C) $ 380,000.
D) $ 180,000.

Question 58

Edgar Inc. reported net income for calendar 2020 of $ 3,500,000. Additional information follows: $\begin{array}{l}\text { Impair ment of goodwill } &\$30,000 \\\text { Depreciation on plant assets }&1,100,000\\\text { Long-term debt: }\\\text { Bond premium amortized}&45,000\\\text { Interest expense}&600,000\\\text { Bad debt s expense}&75,000\end{array}$ Based on the above information, the cash provided by operating activities (indirect method) for calendar 2020 is

A) $ 4,750,000.
B) $ 4,730,000.
C) $ 4,715,000.
D) $ 4,660,000.

Question 59

Oswald 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:

$\begin{array}{ll}\text{} & \quad \quad \quad \quad \quad Dec ~~31/20 \quad \quad Dec ~~31/19 & \\\text{Cash ......................................................................................... } & \quad \quad \quad \quad \quad\text{\$51,000 \quad \quad \quad 24,000} \\\text{Accounts receivable ..........................................................} & \quad \quad \quad \quad \quad \text{\$45,000 \quad \quad \quad 27,000} \\\text{Merchandise inventory..............................................................} & \quad \quad \quad \quad \quad \text{\$48,000 \quad \quad \quad 60,000} \\\text{Property, plant and equ ipment.......................................................................} & \quad \text{\$76,000 \quad \quad \quad 120,000} \\\text{ \quad\quad Less accumulated depreciation...............................} & \text{\$\(\underline{\text{(40,000) }}\) \(\underline{\text{(36,000) }}\) \(\underline{\text{(38,000) }}\) \(\underline{\text{(82,000) }}\)} \\\text{ Total Assets.........................................................} & \quad \quad \quad \quad \quad \text{\$\(\underline{\text{(180,000) }}\) \quad \quad \quad \(\underline{\text{(193.,000) }}\) } \\ \text{} & \quad \quad \quad & \\\text{Accounts payabl.................} & \quad \quad \quad \quad \quad \text{\$22,000 \quad \quad \quad 12,000} \\\text{ Income taxes payable................................................................} & \quad \quad \quad \quad \quad \text{\$44,000 \quad \quad ~~~~49,000} \\ \text{Bonds payable ................................................ } & \quad \quad\quad \quad \quad \text{\$45,000 \quad \quad \quad 75,000} \\\text{ Common shares...................................} & \quad \quad \quad \quad \quad \text{\$27,000 \quad \quad \quad \quad 27,000} \\\text{Retained earnings.....................................} & \quad \quad \quad \quad \quad \text{\$42,000 \quad \quad \quad \quad 30,000} \\\text{Total Liabilities \& Shar eholders' Equ ity...................} & \quad \quad \quad \quad \quad \text{\$180,000 \quad \quad \quad \quad 193,000} \\ \text{} & \\ \text{} & & \\ \text{} & Income Statement & \\ \text{} & Year endebt December 31,2020 & \\ \\ \\\text{Sales ............................................................................................................. } & \text{\$1,050,000 \quad } \\\text{Cost of sales................................................................................................... } & \text{\ \(\underline{\text{ 894,000 }}\) \quad } \\\text{Gross profit.................................................................................................... } & \text{\ 156,000 \quad } \\\text{Selling and administrative expenses................................................................ } & \text{\ \(\underline{\text{ 99,000 }}\) \quad } \\\text{Income from operations.................................................................................. } & \text{\ 57,000 \quad } \\\text{Intersts expense.............................................................................................. } & \text{\ \(\underline{\text{ 9,000 }}\) \quad } \\\text{Income before taxes ........................................................................................ } & \text{\ 40,000 \quad } \\\text{Income taxes................................................................................................. } & \text{\ \(\underline{\text{ 12,000 }}\) \quad } \\\text{Net income...................................................................................................... } & \text{\$ \(\underline{\text{ 36,000 }}\) \quad } \\\end{array}$



The following additional data were provided for calendar 2020:
1) Dividends declared and paid were $ 24,000.
2) Equipment was sold for $ 30,000. This equipment originally cost $ 44,000, and had a book value of $ 36,000 at the time of sale. The loss on sale was included in "selling and administrative expenses," as was the depreciation expense for the year.
3) Bonds were retired during the year at par.
For a statement of cash flows for calendar 2020, using the indirect method, the cash provided by operating activities is

A) $ 51,000.
B) $ 36,000.
C) $ 30,000.
D) $ 25,000.

Question 60

Use the following information for questions.
During calendar 2020, Laertes Corp. sold equipment for $ 70,000. The equipment had cost $ 100,000 and had a book value of $ 52,000 at the time of sale. Data from their comparative statements of financial position are: $\begin{array}{lrr}&\operatorname{Dec} 31 / 20&\operatorname{Dec} 31 / 19\\\text { Equipment } & \$ 720,000 & \$ 650,000 \\\text { Accumulated Depreciation } & 210,000 & 190,000\end{array}$

-Equipment purchased during 2020 was

A) $ 170,000.
B) $ 100,000.
C) $ 70,000.
D) $ 30,000.

Question 61

Advantages and disadvantages of the direct and indirect methods
Discuss the advantages and disadvantages of the direct and indirect methods of preparing a statement of cash flows.

Question 62

the purpose of the statement of cash flow.

Question 63

Effects of transactions on the statement of cash flows (indirect method)
Any given transaction may affect a statement of cash flows (using the indirect method) in one or more of the following ways:
Cash flows from operating activities
A. Net income will be increased or adjusted upward.
B. Net income will be decreased or adjusted downward.
Cash flows from investing activities
C. Increase as a result of cash inflows.
D. Decrease as a result of cash outflows.
Cash flows from financing activities
E. Increase as a result of cash inflows.
F. Decrease as a result of cash outflows.
The statement of cash flows is not affected
G. Not required to be reported on the statement.
Instructions
For each transaction listed below, list the letter or letters from above that describe(s) the effect of the transaction on a statement of cash flows (indirect method) assuming the company follows ASPE. Ignore any income tax effects.
1. Redeemed preferred shares with a carrying value of $ 44,000 for $ 50,000.
2. Wrote off uncollectible accounts receivable of $ 3,000 against the allowance for doubtful accounts balance of $ 12,200.
3. Sold machinery that originally cost $ 3,000, with a book value of $ 1,800, for $ 5,000.
4. Acquired land through the issuance of bonds payable.
5. Sold 1,000 common shares for $ 25 per share.
6. Sold treasury shares at their carrying value.
7. Paid cash dividends of $ 8,000.
8. Purchased a patent for $ 20,000.
____ 9. Recorded depreciation expense of $ 150,000 for the year.

Question 64

As part of the IASB's Disclosure Initiative "Amendments to IAS 7 - Statement of Cash Flows", explain what companies are encouraged, but not required, to do in terms of changes in liabilities arising from financing activities.

Question 65

Cash flows from operating activities (indirect and direct methods)
Presented below is the latest income statement of Oxford Ltd.: $\begin{array}{l} \text{ Sales } ............................................................... & \$ 380,000 \\\text{ Cost of goods sold} ............................................ & 225,000 \\\text{ Gross profit} ..................................................... & \$ 155,000 \\\text{ Operating expenses} ..........................................& 85,000 \\\text{ Income before income taxes } .............................. & 70,000 \\\text{ Income taxes } .....................................................& 28,000 \\\text{ Net income } ........................................................ & \$ 42,000 \\ \end{array}$ In addition, the following information related to net changes in working capital is available: $\begin{array}{lc}&\text { Debit}&\text { Credit}\\\text { Cash } & \$ 12,000 \\\text { Accounts rece ivable (net) }& 8,000 \\\text { Inventories }&&\$19,400 \\\text { Salar ies payable (operating expenses) } &6,000\\\text { Accounts payable } && 9,000 \\\text { Income tax payable. }&3,000\end{array}$ Oxford Ltd. also reports that depreciation expense for the year was $ 13,700 and that the deferred tax liability account increased $ 2,600.
Instructions
Prepare a schedule calculating the net cash flow from operating activities that would be shown on a statement of cash flows:
a) using the indirect method.
b) using the direct method.

Question 66

Use the following information for questions.
Financial statements for Bernard Corp. are presented below: \text{ } \\

$\begin{array}{ll}&&\text{\textbf{ BERNARD CORP. } } \\&&\text{ \textbf{ Statement of Financial Position } } \\&&\text{ \textbf{ January 1, 2020 } } \\\\\text{ \underline{\text{ Assets }} } & &\text{\underline{\text{ Liabilities and Equity }} } & \\\text{ Cash} ......................................... & \$ 160,000 & \text{ Accounts payable } ................................... & \$ 76,000 \\\text{ Accounts receivable } ................& 144,000 & & \\\text{ Buildings and equipment }........ & 600,000 & & \\\text{ Accumulated depreciation} \\\text{ buildings and equipment } ........ & (200,000) & \text{ Common shares }........................................ & 460,000 \\\text{ Patents } ....................................& \underline{\text{ 72,000}} & \text{ Retained earnings } .................................... & \underline{\text{ 240,000}} \\\text{ Total Assets }............................& \underline{\text{ \$776,000 }} & \text{ Total Liabilities } \\ && \&\text{ Shareholders' Equity ....} &\underline{\text{ \$ 776,000}} \\ \end{array}$ BERNARD CORP. Total assets on the December 31, 2020 statement of financial position were $ 1,108,000. Accumulated depreciation on the equipment sold was $ 56,000.

-Ophelia Ltd. reported retained earnings at December 31, 2019 of $ 270,000, and at December 31, 2020, $ 218,000. Net income for calendar 2020 was $ 187,500. During 2020, a stock dividend was declared and distributed, which increased the common shares account by $ 116,500. As well, a cash dividend was declared and paid during the year. The amount of the cash dividend declared and paid was

A) $ 93,000.
B) $ 123,000.
C) $ 164,500.
D) $ 239,500.

Question 67

Oswald 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: The following additional data were provided for calendar 2020:
1. Dividends declared and paid were $ 24,000.
2. Equipment was sold for $ 30,000. This equipment originally cost $ 44,000, and had a book value of $ 36,000 at the time of sale. The loss on sale was included in "selling and administrative expenses," as was the depreciation expense for the year.
3. Bonds were retired during the year at par.
Instructions
From the information above, prepare a statement of cash flows (direct method) for calendar 2020.

Question 68

Preparation of statement of cash flows (indirect method)
The following information is taken from Green Lake Corporation's financial statements. Green Lake adheres to ASPE: $\begin{array}{ll} & \text{ \quad \quad \quad \quad December 31 } \\\text{ } & \text{ \underline{\text{ 2020 }} }& \text{ \underline{\text{ 2019}} } \\\text{ Cash. }............................................................................. & \$ 92,000 & \$ 27,000 \\\text{ Accounts receivable } .......................................................& 95,000 & 80,000 \\\text{ Allowance for doubtful accounts }................................. & (4,500) & (3,100) \\\text{ Inventory. } ..................................................................& 145,000 & 175,000 \\\text{ Prepaid expenses } .......................................................& 7,500 & 6,800 \\\text{ Land } ........................................................................ & 93,000 & 60,000 \\\text{ Buildings }.................................................................. & 287,000 & 244,000 \\\text{ Accumulated depreciation } ......................................... & (35,000) & (13,000) \\\text{ Patents, net of accumulated amortization } ................... &\underline{\text{ 20,000 }} & \underline{\text{ 35,000 }}\\\text{ Total Assets. } & \underline{\text{ \underline{\text{ \$700,000 }} }} & \underline{\text{\underline{\text{ \$611,700 }} }} \\ \end{array}$




$\begin{array}{ll} & \text{ \quad \quad \quad \quad \quad\quad\quad\quad\quad\quad } \\\text{ Accounts payable } ....................................................... & \$ 90,000 & \$84,000 \\\text{ Accrued liabilities} .......................................................& 54,000 & 63,000 \\\text{ Bonds payable} ...............................................................& 125,000 & 60,000 \\\text{ Common shares } ...........................................................& 100,000 & 100,000 \\\text{ Retained earnings } .......................................................& 346,000 & 312,700 \\\text{ Treasury shares, at cost } ................................................& (15,000) & (8,000) \\\text{ Total Liabilities } \text{ \& Shar eholders' Equity } ...................... &\text{ \underline{\text{ \$ 700,000 }} } & \underline{\text{\$611,700 }} \\ \end{array}$


$\begin{array}{ll} & & \text{ For 2020 Year } \\\text{ Net income } ............................................................& & \$ 53,300 \\\text{ Depreciation expense } ............................................ & & 22,000 \\\text{ Amortization of patents } ......................................... & & 7,000 \\\text{ Cash dividends declared and paid }........................ & & 20,000 \\\text{ Gain or loss on disposal of patents } ........................& &\text{ none } \\ \end{array}$ Instructions
Prepare a statement of cash flows (indirect method) for Green Lake Corporation for calendar 2020.

Question 69

Direct and indirect methods
Explain and compare the direct method and the indirect method of preparing a statement of cash flows.

Question 70

Classification of cash flows and transactions
Assuming the company follows ASPE, give:
a) three distinct examples of investing activities.
b) three distinct examples of financing activities.
c) three distinct examples of significant non-cash transactions.
d) two examples of transactions not shown on a statement of cash flows.

Question 71

Calculations for statement of cash flows (indirect method)
Cornwall Ltd. sold a machine that cost $ 19,000 and had a book value of $ 11,000 for $ 13,000. Data from the corporation's comparative statements of financial position are: $\begin{array}{lrr} & \text {\underline{ Dec 31/20 } } & \text {\underline{Dec 31/19 } } \\\text { Machinery } & \$ 200,000 & \$ 173,000 \\\text { Accumulated depreciation } & 48,000 & 34,000\end{array}$ Instructions
Based on the above information, there are four items that need to be shown on a statement of cash flows (indirect method). Calculate these four items. Show your calculations.

Question 72

Classification of cash flows (indirect method)
Note that X in the following statement of cash flows identifies a dollar amount and the letters (A) through (F) identify specific items, which appear in the major sections of the statement of cash flows prepared using the indirect method. Instructions
For each of the following items, indicate by letter in the blank spaces below, the section or sections where the effect would be reported assuming the company follows ASPE. Use the code (A through F) from above. If the item is not required to be reported on the statement of cash flows, write the word "none" in the blank. Assume that generally accepted accounting principles have been followed in determining net income and that there are no temporary investments which are considered cash equivalents.
1. Issued preferred shares in exchange for equipment.
2. Accounts receivable increased by $ 60,000.
3. Accrued estimated income taxes for the year.
4. Amortization of premium on bonds payable.
5. Purchase of long-term investment.
6. The book value of FV-NI investments was reduced to fair value.
7. Declaration of stock dividends.
8. Bad debts expense recorded (company uses the allowance method).
9. Gain on disposal of old machinery.
10. Declaration and payment of cash dividends.
11. FV-NI investments sold at a loss.

Question 73

below is the latest income statement of Mandolin Ltd.: $\begin{array}{llr} \text { Sales.} &\$570,000\\ \text {Cost of goods sold. } &337,500\\ \text {Gross profit. } &\$232,500\\ \text { Operating expenses. } &127,500\\ \text {Income before income taxes } &105,000\\ \text {Income taxes } &42,000\\ \text { Net income. } &\$63,000\end{array}$
In addition, the following information related to net changes in working capital is available: $\begin{array}{lc} &\text { \underline{\text{Debit } }} &\text { \underline{\text{ Credit}} } \\\text {Cash } ................................................................................................ & \$ 18,000 & \\\text { Accounts receivable (net) } ..............................................................& 12,000 & \\\text { Inventories } ......................................................................................& & \$ 29,100 \\\text { Salar ies payable (operating expenses) }........................................... & 9,000 & \\\text {Accounts payable }............................................................................ & & 13,500 \\\text { Income tax pavable } ............................................................................ & 4.500 & \\ \end{array}$ Mandolin Ltd. also reports that depreciation expense for the year was $ 20,550 and that the deferred tax liability account increased $ 3,900.
Instructions
Prepare a schedule calculating the net cash flow from operating activities that would be shown on a statement of cash flows using the direct method.

Question 74

Preparation of statement of cash flows (direct method)
White Horse Ltd. has prepared the following comparative statements of financial position at December 31, 2019 and 2020: White Horse adheres to ASPE. $\begin{array}{lrr} & \underline{ 2020 } &\underline{ 2019 } \\\text{Cash }................................................................................. & \$ 99,000 & \$ 51,000 \\\text{ Accounts receivable } ....................................................... & 53,000 & 39,000 \\\text{ Inventory } ...................................................................... & 50,000 & 60,000 \\\text{ Prepaid expenses }......................................................... & 6,000 & 9,000 \\\text{ Property, plant \& equipment }...................................... & 420,000 & 350,000 \\\text{ Accumulated depreciation } ........................................ & (150,000) & (125,000) \\\text{ Goodwill. } ................................................................. & \underline{ 51,000 } & \underline{ 58,000 } \\ & \underline{\$ 529,000} & \underline{ \$ 442,000 }\\ \\\text{ Accounts payable } ........................................................& \$ 51,000 & \$ 56,000 \\\text{ Accruedliabilities } ........................................................ & 20,000 & 14,000 \\\text{ Mortgage payable } ........................................................ & ---- & 150,000 \\\text{ Preferred shares. } ........................................................& 215,000 & ---- \\\text{ Common shares } ........................................................& 200,000 & 200,000 \\\text{ Retained earnings } ........................................................& 43,000 & 22,000 \\\text{ } & \underline{ \$ 529,000 } & \underline{ \$ 442,000 } \\ \end{array}$
1. The Accumulated Depreciation account has been credited only for the depreciation expense for the year. There were no disposals of property, plant and equipment, but new equipment was purchased during 2020.
2. Depreciation expense and a charge for impairment of goodwill have both been included in operating expenses.
3. The Retained Earnings account was debited for cash dividends declared and paid of $ 46,000, and credited for the net income for the year.
The condensed income statement for 2020 is as follows: $\begin{array}{l} \text{Sales } ................................... & \$ 660,000 \\\text{ Cost of sales } .....................& \underline{ 363,000 } \\\text{ Gross profit } .....................& 297,000 \\\text{ Operating expenses }....... & \underline{ 230,000 }\\\text{ Net income }..................... & \$ 67,000 \\ \end{array}$ Instructions
From the information above, prepare a statement of cash flows (direct method) for calendar 2020.

Question 75

Presented below is the latest income statement of Minx Ltd.: $\begin{array}{lrr} \text{ Sales } ............................................ & \$ 1,900,000 \\\text{ Cost of goods sold } ......................& 1,125,000 \\\text{ Gross profit } .................................& \$ 775,000 \\\text{ Operating expenses }...................... & 425,000 \\\text{ Income before income taxes } ........... & 350,000 \\\text{ Incometaxes }.................................& 140,000 \\\text{ Net income} .................................& \$ 210,000 \\ \end{array}$ In addition, the following information related to net changes in working capital is available: $\begin{array}{lrr} & \text{ \underline{ Debit } } & \text{ \underline{ Credit } } \\\text{ Cash }.......................................................... & \$ 60,000 & \\\text{ Accounts receivable (net) }........................... & 40,000 & \\\text{ Inventories } ................................................. & & \$ 77,000 \\\text{ Prepaid expenses } .......................................... & & 20,000 \\\text{ Salar ies payable (operating expenses) .......... } & 30,000 & \\\text{Accounts payable }.......................................... & & 45,000 \\\text{ Income tax payable } ....................................... & 15,000 & \\ \end{array}$ Minx Ltd. also reports that depreciation expense for the year was $ 68,500 and that the deferred tax liability account increased $ 13,000.
Instructions
Prepare a schedule calculating the net cash flow from operating activities that would be shown on a statement of cash flows:
a) using the indirect method.
b) using the direct method.

Question 76

Horse Ltd. has prepared the following comparative statements of financial position at December 31, 2019 and 2020: White Horse adheres to ASPE. $\begin{array}{lc}\underline{\text{ 2020 }} & \underline{\text{ 2019 }} & \\\text { Cash } & \$99,000 & \$ 51,000 \\\text { Accounts receivable } & 53,000 & 39,000 \\\text { Inventory }& 50,000 & 60,000 \\\text { Prepaid expenses } & 6,000 & 9,000 \\\text { Property, plant \& equipment } & 420,000 & 350,000 \\\text {Accumulated depreciation } & (150,000) & (125,000) \\\text { Goodwill } & 51,000 & 58,000 \\\text { } & \underline{\text{ \$529,000 }} & \underline{\text{ \$442,000 }} \\\\\text {Accounts payable } & \$ 51,000 & \$ 56,000 \\\text { Accrued liabilities } & 20,000 & 14,000 \\\text { Mortgage payable } & - & 150,000 \\\text { Preferred shares }& 215,000 & - \\\text {Common shares } & 200,000 & 200,000 \\\text { Retained earnings } & \underline{\text{ 43,000 }} & \underline{\text{ 22,000 }} \\\text { } & \underline{\text{ \$529,000 }} & \underline{\text{ \$ 442,000 }} \\ \end{array}$
1. The Accumulated Depreciation account has been credited only for the depreciation expense for the year. There were no disposals of property, plant and equipment, but new equipment was purchased during 2020.
2. Depreciation expense and a charge for impairment of goodwill have both been included in operating expenses.
3. The Retained Earnings account was debited for cash dividends declared and paid of $ 46,000, and credited for the net income for the year.
The condensed income statement for 2020 is as follows: $\begin{array}{l} \text{ Sales } .................................................... & \$ 660,000 \\\text{ Cost of sales }........................................ & \underline{ 363,000 } \\\text{ Gross profit } .........................................& 297,000 \\\text{ Operating expenses } .............................& \underline{ 230,000 } \\\text{ Net income } ......................................... & \$ 67,000 \\ \end{array}$ Instructions
From the information above, prepare a statement of cash flows (indirect method) for calendar 2020.

Question 77

Choices of statement of cash flows categories under IFRS
Under IFRS, choices are allowed in the categorization of interest paid and received and dividends received. Explain what these choices are.

Question 78

Calculations for statement of cash flows (indirect method)
During 2020, equipment was sold for $ 15,000. This equipment originally cost $ 24,000 and had a book value of $ 14,000 at the date of sale. Accumulated depreciation for equipment was $ 65,000 at December 31, 2019 and $ 62,000 at December 31, 2020.
Instructions
Based on the above information show how the sale (including any gain or loss), and the depreciation expense for 2020 would be shown on a statement of cash flows (indirect method). Include your calculations.

Question 79

Preparation of statement of cash flows (format provided)
Comparative statements of financial position for Burgundy Bay Ltd. are shown below: Burgandy adheres to ASPE.
$\begin{array}{ll} \quad\quad\quad\quad\text{\textbf{ BURGUNDY BAY LTD } . } \\\quad\quad\text{\textbf{ Statements of Financial Position } } \\&\quad\quad\quad\quad \text{ \underline{\text{ December 31 }} } \\ &\text{ \underline{\text{ 2020 }} } &\text{ \underline{\text{ 2019 }} } \\\text{ Cash } .............................................................. & \$ 30,900 & \$ 10,200 \\\text{ Accounts receivable (net) }............................... & 48,300 & 20,300 \\\text{ Inventory } ........................................................& 35,000 & 42,000 \\\text{ Long-term investments } .................................. & 0 & 15,000 \\\text{ Property, plant \& equipment } ........................ & 236,500 & 150,000 \\\text{ Accumulated depreciation} ..............................& (37,700) & (25,000) \\\text{ Total Assets } ................................................ .& \underline{\text{ \$313,000 }} & \underline{\text{ \$ 212,500 }} \\\\\text{ Accounts payable } ..........................................& \$ 19,000 & \$ 26,500 \\\text{ Accruedliabilities } ..........................................& 19,000 & 17,000 \\\text{ Long-term notes payable } ..............................& 70,000 & 50,000 \\\text{ Common shares }............................................ & 130,000 & 90,000 \\\text{ Retained earnings} ..........................................& \underline{\text{ 75,000 }} & \underline{\text{ 29,000 }} \\\text{ Total Liabilities } \& \text{ Shareholders' Equity } &\underline{\text{ \underline{\text{\$313,000 }} }} &\underline{\text{ \underline{\text{ \$ 212,500}} }} \\ \end{array}$ Additional information concerning transactions and events during 2020:
1. Net income was $ 80,000.
2. Sold the long-term investments for $ 28,000.
3. Paid cash dividends of $ 34,000.
4. Purchased machinery costing $ 26,500, paid cash.
5. Purchased machinery by signing a $ 60,000 long-term note payable.
6. Extinguished a $ 40,000 long-term note payable by issuing common shares.
Instructions
Using the format provided on the next page, prepare a statement of cash flows (indirect method) for calendar 2020 for Burgundy Bay Ltd.

Question 80

Explain how free cash flow is used and what it reflects as a performance measure.