Comparative balance sheet accounts of Secada Inc., which follows IFRS, follow:

Additional data:
1. Cash dividends declared during the year were $21,125.
2. A 20% stock dividend was declared during the year and $25,000 of retained earnings was capitalized.
3. Investments at FV-NI that cost $20,000 and had a fair value at December 31, 2010, of $22,500 were sold during the year for $23,750.
4. Machinery that cost $3,750 and had $750 of depreciation accumulated was sold for $2,200. Secada€™s 2011 statement of income is as follows:

Instructions
(a) Calculate net cash flow from operating activities using the direct method.
(b) Prepare a statement of cash flows using the indirect method.
(c) Assume that your investment club is considering investing in Secada Inc. Write a memo to the other members of the club about the company€™s cash activities during 2011.
(d) Management wants to provide more captions (headings) in the section on cash flow from operating activities.
Recommend one additional caption that would help achieve that goal.

Transcribed Image Text:

SECADA INC. Comparative Balance Sheet Accounts December 31, 2011, and 2010 December 31 Debit accounts 2011 2010 Cash Accounts receivable Merchandise inventory Long-term investments (FV-NI) Machinery Buildings Land 45,000 67,500 30,000 23,250 30,000 67,500 7,500 $270,750 $33,750 60,000 24,000 40,500 18,750 56,250 7,500 $240,750 Credit accounts Allowance for doubtful accounts Accumulated depreciationmachinery Accumulated depreciation-buildings Accounts payable Accrued payables Income taxes payable Long-term note payable non-trade Common shares Retained earnings $ 2,250 5,625 13,500 30,000 2,375 1,000 26,000 150,000 40,000 $270,750 $ 1,500 2,250 9,000 24,750 1,125 1,500 31,000 125,000 44,625 $240,750 Sales Less cost of goods sold Gross margin Less: Operating expenses (includes $8,625 $640,000 380,000 260,000 depreciation, and $5,400 bad debts) Income from operations Other: Holding loss on investments (FV-NI) 180,450 79,550 事 (1,000) (800) Loss on sale of machinery Income before taxes Income tax expense Net income (1,800) 77,750 40,000 $37,750