Strong House Inc. had the following condensed statement of financial position at December 31, 2019:
Strong House Inc. follows IFRS and chooses to classify dividends paid as financing activities and interest paid as operating activities on the statement of cash flows. During 2020, the following occurred:
1. Strong House Inc. sold part of its investment portfolio in bonds for $15,500, resulting in a gain of $500.
2. Dividends totalling $19,000 were paid to shareholders.
3. A parcel of land, to be used as a parking lot, was purchased for $5,500.
4. Common shares were issued for cash totalling $20,000. 5. Bonds payable of $10,000 were retired at par.
6. Equipment was purchased through the issuance of $32,000 of bonds.
7. Net income for 2020 was $42,000 after allowing for depreciation on Strong House Inc.’s plant assets of $13,550. The amount of interest paid during 2020 was $4,150 and the amount of income taxes paid was $19,500.
8. Both current assets (other than cash) and current liabilities remained at the same amount.
Instructions
a. Prepare a statement of cash flows for 2020 using the indirect method.
b. Draft a one-page letter to Mr. Gerald Brauer, president of Strong House Inc., in which you briefly explain the changes within each major cash flow category. Refer to the statement of cash flows whenever necessary.
c. Prepare a condensed statement of financial position at December 31, 2020, for Strong House Inc.
d. Comment briefly about why the statement of cash flows used to be called a statement of changes in financial position. What additional relevant disclosure in financial reporting has been achieved with the change from the former statement of changes in financial position to the current statement of cash flows?
