Ch. 4 The Income Statement, Comprehensive Income, and the Statement of Cash Flows (4 marks) Q1: Discontinued operation; disposal in subsequent years (LO 4): Kandon Enterprises Ltd has two operating divisions, one manufactures machinery and the other breeds and sells horses. Both divisions are considered separate components as defined by IFRS. The horse division has been unprofitable, and on November 15, 2013, Kandon adopted a formal plan to sell the division. The sale was completed on April 30, 2014. As at December 31, 2013, the component was considered held for sale. On December 31, 2013, the company's financial year-end, the book value of the assets of the horse division was $250,000. On that date, the fair value of the assets, less costs to sell, was $200,000. The before tax loss from operations of the division for the year was $140,000. The company's effective tax rate is 20%. The after-tax income from continuing operations for 2013 was $400,000 Required: 1. Prepare a partial income statement for 2013 beginning with income from continuing operations. Ignore EPS disclosures. 2. Repeat requirement 1 assuming that the estimated net fair value of the horse division's assets was $400,000, instead of $200.000. The statement of cash flows for the year ended December 31, 2013, for Bronco Metals is presented below. Bronco Metals prepares its financial statements according to U.S. GAAP. BRONCO METALS Statement of Cash Flows For the Year Ended December 31, 2013 Cash flows from operating activities: Collections from customers $ 353,000 Interest on note receivable 4,000 Dividends received from investments 2,400 Purchase of inventory (186,000) Payment of operating expenses (67,000) Payment of interest on note payable (8,000) Net cash flows from operating activities $ 98,400 Cash flows from investing activities: Collection of note receivable 100,000 Purchase of equipment (154,000) Net cash flows from investing activities (54,000) Cash flows from financing activities: Proceeds from issuance of ordinary shares 200,000 Dividends paid (40,000) Net cash flows from financing activities 160,000 Net increase in cash 204,400 Cash and cash equivalents, January 1 28,600 Cash and cash equivalents, December 31 $233,000 Required: Prepare the statement of cash flows assuming that Bronco prepares its financial statements according to IFRS and classifies dividends and interest received as investing cash flows and dividends and interest paid as financing cash flows. The statement of cash flows for the year ended December 31, 2013, for Bronco Metals is presented below. Bronco Metals prepares its financial statements according to U.S. GAAP. E 4-18 IFRS versus U.S. GAAP; statement of cash flows LO9LO10 BRONCO METALS Statement of Cash Flows For the Year Ended December 31, 2013 Cash flows from operating activities: Collections from customers $ 353,000 Interest on note receivable 4,000 Dividends received from investments 2,400 Purchase of inventory (186,000) Payment of operating expenses (67,000) Payment of interest on note payable (8,000) Net cash flows from operating activities $ 98,400 Cash flows from investing activities: Collection of note receivable 100,000 Purchase of equipment (154,000) Net cash flows from investing activities (54,000) Cash flows from financing activities: Proceeds from issuance of ordinary shares 200,000 Dividends paid (40,000) Net cash flows from financing activities 160,000 Net increase in cash 204,400 Cash and cash equivalents, January 1 28,600 Cash and cash equivalents, December 31 $233,000 Required: Prepare the statement of cash flows assuming that Bronco prepares its financial statements according to IFRS and classifies dividends and interest received as investing cash flows and dividends and interest paid as financing cash flows. Ch. 4 The Income Statement, Comprehensive Income, and the Statement of Cash Flows (4 marks) Q1: Discontinued operation; disposal in subsequent years (LO 4): Kandon Enterprises Ltd has two operating divisions, one manufactures machinery and the other breeds and sells horses. Both divisions are considered separate components as defined by IFRS. The horse division has been unprofitable, and on November 15, 2013, Kandon adopted a formal plan to sell the division. The sale was completed on April 30, 2014. As at December 31, 2013, the component was considered held for sale. On December 31, 2013, the company's financial year-end, the book value of the assets of the horse division was $250,000. On that date, the fair value of the assets, less costs to sell, was $200,000. The before tax loss from operations of the division for the year was $140,000. The company's effective tax rate is 20%. The after-tax income from continuing operations for 2013 was $400,000 Required: 1. Prepare a partial income statement for 2013 beginning with income from continuing operations. Ignore EPS disclosures. 2. Repeat requirement 1 assuming that the estimated net fair value of the horse division's assets was $400,000, instead of $200.000. The statement of cash flows for the year ended December 31, 2013, for Bronco Metals is presented below. Bronco Metals prepares its financial statements according to U.S. GAAP. BRONCO METALS Statement of Cash Flows For the Year Ended December 31, 2013 Cash flows from operating activities: Collections from customers $ 353,000 Interest on note receivable 4,000 Dividends received from investments 2,400 Purchase of inventory (186,000) Payment of operating expenses (67,000) Payment of interest on note payable (8,000) Net cash flows from operating activities $ 98,400 Cash flows from investing activities: Collection of note receivable 100,000 Purchase of equipment (154,000) Net cash flows from investing activities (54,000) Cash flows from financing activities: Proceeds from issuance of ordinary shares 200,000 Dividends paid (40,000) Net cash flows from financing activities 160,000 Net increase in cash 204,400 Cash and cash equivalents, January 1 28,600 Cash and cash equivalents, December 31 $233,000 Required: Prepare the statement of cash flows assuming that Bronco prepares its financial statements according to IFRS and classifies dividends and interest received as investing cash flows and dividends and interest paid as financing cash flows. The statement of cash flows for the year ended December 31, 2013, for Bronco Metals is presented below. Bronco Metals prepares its financial statements according to U.S. GAAP. E 4-18 IFRS versus U.S. GAAP; statement of cash flows LO9LO10 BRONCO METALS Statement of Cash Flows For the Year Ended December 31, 2013 Cash flows from operating activities: Collections from customers $ 353,000 Interest on note receivable 4,000 Dividends received from investments 2,400 Purchase of inventory (186,000) Payment of operating expenses (67,000) Payment of interest on note payable (8,000) Net cash flows from operating activities $ 98,400 Cash flows from investing activities: Collection of note receivable 100,000 Purchase of equipment (154,000) Net cash flows from investing activities (54,000) Cash flows from financing activities: Proceeds from issuance of ordinary shares 200,000 Dividends paid (40,000) Net cash flows from financing activities 160,000 Net increase in cash 204,400 Cash and cash equivalents, January 1 28,600 Cash and cash equivalents, December 31 $233,000 Required: Prepare the statement of cash flows assuming that Bronco prepares its financial statements according to IFRS and classifies dividends and interest received as investing cash flows and dividends and interest paid as financing cash flows