Seneca Corporation, which uses IFRS, has contracted with you to prepare a statement of cash flows. The controller has provided the following information:
Additional information related to 2020 is as follows:
1. Equipment that cost $10,500 and was 50% depreciated at the time of disposal was sold for $2,600.
2. Common shares were issued to pay $10,000 of the long-term note payable.
3. Cash dividends paid were $6,000. Seneca has adopted the policy of classifying dividends paid as operating activities.
4. On January 1, 2020, a flood destroyed the building. Insurance proceeds on the building were $23,000.
5. FV-NI investments in shares were sold at $3,300 above their cost. The fair value of these investments at December 31, 2019, equalled their original cost. 6. Cash of $17,000 was paid to acquire equipment.
7. A long-term note for $15,500 was issued in exchange for equipment.
8. Interest of $2,200 and income tax of $5,600 were paid in cash. Seneca has adopted the policy of classifying interest paid as financing activities.
Instructions
a. Use the indirect method to analyze the above information and prepare a statement of cash flows for Seneca.
b. Prepare a reconciliation of the change in the property, plant, and equipment’s carrying amount to the amounts appearing on the statement of cash flows and corresponding notes.
c. Financial statement preparers often use reconciliations of changes in major categories of SFP accounts to balance the statement of cash flows, as required in part (b) above. What additional insight does this reconciliation reveal to a reader of the statement that is not as evident from the statement of cash flows?
d. Prepare a short analysis of Seneca’s cash flow activity for 2020. The analysis is to be given to the controller.
e. What choices, if any, are available for classifications for interest and dividends paid or received by Seneca?
f. What kind of company would you expect to be revealed by the operating, investing, and financing sections of Seneca’s statement of cash flows: a company that is severely troubled financially or a recently formed company that is experiencin
g rapid growth? g. Compare Seneca’s net cash flow provided by operating activities with net income. Comment on the relationship between these two amounts from the perspective of an investor.
