3343 ASSIGNMENT 2 F2022

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Saint Mary's University *

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Accounting

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Feb 20, 2024

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Question #1 (16 marks) Part A and Part B are independent. Part A. (8 marks) [Extracted from the financials of Befuddled Corporation] The Net income for 2018 was $15,000 and Preferred dividends paid $1,200; Common shares outstanding, Jan 1, 2018, were 3,000. Common shares issued on April 1, 2018, were 600, and Common shares repurchased on Nov 1, 2018, were 300 so that Common shares outstanding, Dec 31, 2018, were 3,300. Required: Compute basic eps Basic EPS= Net Income-Preference Dividends = 15,000 -1,200 =13,800 = $4.38 Weighted Average of Common Shares (3000+3300)/2. 3150 Part B. [Extracted from the financials of Limpid Corporation] (8 marks) The Net income for a period was $5,250. Common shares outstanding were 1,500 and convertible preferred shares outstanding were 60. Each share of preferred pays a dividend of $15 per share, and each is convertible into three common shares. Required: Compute diluted eps Net Income-Preference Dividends = 5,250-(60*$15) = 5,250-900. = 4350 = $2.58 Weighted average of common shares 1500+(60*3). 1500+180. 1680 Question #2 (37 marks) This question consists of 2 independent sub-questions 29 marks B/S Dec. 31 2019 Dec. 31 2018 Cash $ 9,780 $ 4,840 Short-term investment 12,800 11,400 A/R 7,580 4,300 Inventory 12,250 9,285 Prepaid expenses 1,840 2,600

PPE 27,000 24,250 Accumulated depreciation (5,000) (5,200) Total $66,250 $51,475 A/P $ 9,300 $ 7,730 Accrued liabilities 1,150 700 Bank loan payable 11,000 15,000 Common shares 20,000 17,500 R/E 24,800 10,545 Total $66,250 $51,475 I/S for 2019 Sales $49,278 CGS 18,546 Gross profit 30,732 Operating expenses 11,641 Operating income (EBIT) 19,091 Other revenues and expenses: Unrealized gain on ST-investment $1,400 Interest expense (473) 927 Income before tax 20,018 Tax expense 4,500 NI $15,518 Additional information: Prepaid expenses and accrued liabilities relate to operating expenses. An unrealized gain on ST-investment of $1,400 was recorded. A/P relates to purchases of inventory. Operating expenses include $4,650 of depreciation expense and a $750 loss on disposal of equipment. Required: a. (i) Prepare cash flows from operations, CFO using the INDIRECT method. (12 marks)

Indirect Method Operations: Net Income $15,518 Depreciation $4,650 Loss on disposal of equipment $750 Working Capital Changes: Increase in Accounts Receivables -3280 Increase in Inventory -2965 Decrease in Prepaid Expenses 760 Increase in Accounts Payables 1570 Increase in Accrued Liabilities 450 -3465 Cashflow from Operations $17,453 Beginning Inventory 9285 Purchases 1570 Cost of Goods Sold -760 Ending Inventory 11615 (ii) Calculate the cash paid for operating expenses. (7 marks) Beginning Operating Expense 11641 Decrease Prepaid Expense -760 Increase in AL -450 Depreciation Expense -4650 Loss on disposal -750 -6610 5031 b. (10 marks) Complete the table below. 2019 2018 OA 43670 35235 OL 10450 8430 NOA 33220 26805

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NOPAT=EBIT(1-Tax) =19091*(1-0.22479) =14,799.39 Tax rate=4500/20018=0.22479 Change in NOA=6415 FCF = NOPAT – Change in NOA. =14799.39-6415= $ 8384.39 2. Beginning Ending PPE, net $206,000 $214,000 Depreciation for the period $39,000 Acquisition of new PPE $54,000 Loss on the disposition of PPE $2,000 Calculate the cash proceeds from the disposition. (8 marks) PPE at Start= $206,000 Acquisition=$54,000 Disposal = $46,000 PPE at End=$214,000 Loss on Disposal=Sales Proceeds-Book Value $2,000=Sales- Book Value $2000=Sales-(46,000-39000) Sales Proceeds=$5,000 Question #3 (47 marks) Gadfly Corporation’s income statement for the year ended December 31, 2020, and comparative balance sheets at December 31, 2019 and 2020 appear below: Gadfly Corporation Comparative Balance Sheets Dec. 2019 Dec. 2020 Assets Cash $ 80 $240 A/R 100 150 Inventory 190 130 LT-investments 220 180 Plant and equipment 400 440 Acc. Depreciation (200) (220) Land 0 580 Total $790 $1,500

Liabilities and equity A/P $210 $ 90 Wages payable 80 60 LT-NP 100 270 C/S 100 600 R/E 300 480 Total $790 $1,500 Income Statement For the Year Ended December 31, 2020 Sales revenue $1,340 CGS (760) Depreciation (100) Other expenses (300) Loss on sale of equipment (20) Gain on sale of LT-investments 100 NI $ 260 Additional data for 2020: i. Plant and equipment costing $160 (50% depreciated) was sold at the end of 2020 for $60 cash. ii. Acquired land costing $200; paid $50; gave LT-NP for the balance. iii. Paid $80 on LT-NP. iv. Issued common stock for $200 cash. v. Acquired plant and equipment for $200; paid 50% cash; gave LT-NP for the balance. vi. Issued 300 C/S for land with a fair value of $380 and paid the balance in cash. The shares were actively traded at $1 per share. vii. Sold LT-investments for $140. viii. Dividends were declared and paid in the same year. Required: a. Prepare the statement of cash flows using the INDIRECT method. 30 marks

b. Prepare CFO using the DIRECT method. 17 marks

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