Chapter 4
The following information is available for Chukee Inc. on December 31, 2018:
Chukee Inc.
Comparative Balance Sheet
Assets 2018 2017
Cash $133,900 $5,400
Accounts receivable 84,600 74,000
Prepaid rent 30,000 38,000
Inventory 366,000 204,000
Equipment 400,000 350,000
Accumulated amortization (85,600) (63,000)
Total Assets $928,900 $608,400
Liabilities and Shareholders' Equity
Accounts payable
Accrued expenses $85,000
62,000 $109,400
79,000
Accounts payable 85,000 109,400
Bonds payable 140,000 140,000
Common shares 310,000 210,000
Retained earnings 331,900 70,000
Total liabilities and shareholders’ equity $928,900 $608,400
Additional information:
Net income for 2018 is $331,900. Net sales for 2018 are $975,000.
Cash dividends of $70,000 were declared and paid in 2018.
Equipment with a cost of $140,000 and accumulated amortization of $56,000 were sold at a gain
of $55,000
Equipment costing $190,000 were purchased for cash
The company issued common shares for cash of $100,000 in 2018
If the cash out-flow from investing activities is 51,000 and the cash in-flow from financing
activities is 30,000, what is the cash flow from operating activities? $149,500
Under the indirect method, how is the change in Accounts Receivable recorded? The increase of
$10,600 is subtracted in Operating Activities
Under the indirect method, how is the issuance of common shares recorded? The increase of
$100,000 is added in Financing Activities
What is the cash collection from customers?
Beginning A/R + Sales – Collections = Ending A/R
Therefore, Collections = 74,000 + 975,000 – 84,600 = $964,400
For interest purposes (not required for the scope of this course), this is how the statement of
cash flows would have been prepared for the question above:
Chukee Inc.
Statement of Cash Flows
For the year ended December 31, 2018
Cash flows from operating activities
Net income 331,900
Adjustments
Amortization expense 78,600
Gain on sale of equipment (55,000)
Increase in A/R (10,600)
Decrease in prepaid rent 8,000
Increase in inventory (162,000)
Decrease in A/P (24,400)
Decrease in accrued expenses (17,000)
Cash flows from operating activities 149,500
Cash flows from investing activities
Sale of equipment 139,000
Purchase of equipment (190,000)
Cash flows from investing activities (51,000)
Cash flows from financing activities
Payment of dividends (70,000)
Issuance of common shares 100,000
Cash flows from financing activities 30,000
Net cash flows 128,500
Beginning cash Jan 1, 2017 5,400
Ending cash 133,900
If Tusker Inc.’s accounts payable decrease by $50,000 and total purchases during the period were
$15,000 then how much was paid to suppliers?
Beginning A/P + Purchases – Payments = Ending A/P
Take any amount for Beginning A/P and make Ending A/P $50,000 less. E.g. an arbitrary
amount for Beginning A/P could be $51,888 so the Ending A/P would then be $50,000 lower
i.e. $1,888.
Thus, Payments = $51,888 + $15,000 - $1,888 = $65,000
Note: Usually, you would need the inventory account to calculate purchases but this
question already gives it to you. The inventory account to calculate purchases is:
Beginning Inventory + Purchases – Cost of Goods Sold = Ending Inventory
In 2018, Makupa Inc. reported an increase in accounts receivable of $23 million, and an increase
in inventory of $25 million. They also experienced a decrease in accrued liabilities of $15
million, a decrease in bonds payable of $17 million, and an increase in accounts payable of $3
million. What is the net effect of adjustments from these changes on the statement of cash
flows?
-77 million. Note how the answer changes if the question asks for changes from Operating
Activities only or Financing activities only. If the question asked for changes from
Operating Activities only, the answer would leave out the Bonds Payable adjustment. If the
question asked for changes from Financing Activities only, the answer would leave out
everything except the Bonds Payable Adjustment.
Note that non-cash activities such as purchase of building for common shares is only
recorded in the schedule of noncash investing and financing activities and would not affect
the answer.
Identify where each of the following items would appear on a cash flow statement under IFRS.
Use (O) for the operating activities section, (I) for the investing activities section, (F) for the
financing activities section, (NIF) for the schedule of noncash investing and financing activities,
and (N) if the item does not appear anywhere on the cash flow statement. Assume the statement
is prepared using the indirect method.
O a. gain on sale of land
I b. sale of a long-term investment in stock
N c. cost of goods sold
NIF d. exchange of common shares for a building
F e. payment of non-current debt
O f. depreciation of a patent
I g. purchase of machinery
O h. net income
I & NIF i. Purchase of $100k building paid for 50% by cash and 50% by issue of 20-year
bonds payable