Question: A major shareholder of Systems Unlimited Inc.,
A major shareholder of Systems Unlimited Inc., Phil Wang, is perplexed. The 2020 income statement showed a healthy profit of $280 thousand. Yet, when Linda Lewis, the bank manager and a friend of Phil’s, called to let him know that the bank had just reviewed the March 31, 2020, statements, she had said, “Phil, I just wanted to give you a heads-up. We’re extremely concerned about the message your 2020 statement of cash flows is sending. We may have to call in the secured loan unless the new company manager, Martha Shewart, has some reasonable explanations. I’m phoning her next.â€
When asked, Martha Shewart says, “That’s correct, Linda. We sold some of the unsecured manufacturing equipment. It cost $245 thousand and we got $150 thousand. No, it didn’t go for book value; we incurred a loss of $50 thousand ... where on the income statement? It’s in Other expenses. Don’t worry, Linda, a friend of mine, Ronald Trump, is going to sell us cheaper equipment. It’s on order. I signed the contract and it will be delivered in April.†After the conversation, Martha Shewart slams the phone down and thinks, “I own 20% of the shares in this company; how dare anybody question my actions?!â€
Required
1. Prepare a statement of cash flows (applying the indirect or direct method)* for the year ended March 31, 2020.
2. Using the elements of critical thinking described on the inside front cover, identify and discuss the problem, goal, facts, and conclusion, while keeping in mind that it is best not to jump to conclusions.
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> What is the balance sheet classification of land held for future expansion? Why is the land not classified as property, plant, and equipment?
> What characteristics of a property, plant, and equipment item make it different from other assets, such as accounts receivable or inventory?
> Refer to the financial statements for Spin Master and calculate the percentage change in non-current liabilities from December 31, 2016 to December 31, 2017.
> Refer to the financial statements for Spin Master and calculate the percentage change in revenue from December 31, 2016, to December 31, 2017.
> Zest Company is a Montreal HR firm. Its condensed income statement for the year ended November 30, 2020, is shown below. The liabilities reported on the November 30, 2020, balance sheet were: Accounts payable $ 26,230 Mortgage payable 328,698 Total lia
> What is the difference between comparative financial statements and common-size comparative statements?
> Refer to the financial statements for WestJet and calculate the percentage change in sales and marketing expenses from 2016 to 2017.
> Refer to the financial statements for WestJet and calculate the percentage change in total revenues from 2016 to 2017.
> What ratios would you calculate for the purpose of evaluating management performance?
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> Why is the capital structure of a company, as measured by debt and equity ratios, of importance to financial statement analysts?
> What information does the inventory turnover provide about a company’s short-term liquidity?
> What is the significance of the inventory of days’ sales uncollected?
> What does a relatively high accounts receivable turnover indicate about a company’s short-term liquidity?
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> Explain the difference between financial reporting and financial statements.
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> Explain how sales are converted from an accrual basis to a cash basis for use in the direct method.
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> What are some examples of items reported on a statement of cash flows as investing activities?
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> When non-strategic debt investments are accounted for using the amortized cost method, when should interest income be recognized?
> When non-strategic investments are accounted for using the fair value method, when should investment income be recognized?
> Is the FVTPL category used when management plans to hold investments to maturity or if they plan to actively trade the debt investments?
