Question 1-2

AP5-5 (Appendix 5A) Preparing the Statement of Cash Flows with Sale of Equipment (Indirect Method) P5-5) EL05-2,5-3, 015-4,5-5, 5-S1 Mary Wong, the sole shareholder and manager of Kitchenware Inc., has approached you and asked you to prepare a statement of cash flows for her company. The company sells kitchen utensils that are used in most households. Mary is worried about the meeting that she has scheduled in two weeks with a lending officer of her bank. It is time for a review of the company's loan from the bank. Mary provided you with the following condensed financial statements for the fiscal years ended December 31, 2019 and 2020. She assures you that the financial statements are free of any omissions or misstatements, and that they conform to IFRS. KITCHENWARE INC. Statements of Financial Position as at December 31 (in thousands of dollars) 2020 2019 Assets Current assets Cash $ 1,000 $ 3,400 2.000 8,000 56,300 10,600 Short-term investments Trade accounts receivable Inventories Furniture and fixtures, at cost 30,000 26,000 Less: Accumulated depreciation 10,000 59,000 (24,000) 2,000 $ $ 106,300 (12,000) Investments 3,000 $ 69,000 Total assets Liabilities and Shareholders' Equity Current liabilities Bank loan $ 18,000 $ 8.000 Trade accounts payable 17,000 13.100 Dividends payable -0- 600 Total current liabilities 35,000 21,700 Non-current liabilities Mortgage notes payable 28.000 -0- Total liabilities 63,000 21.700 Shareholders' equity 24,000 22.000 Contributed capital Retained earnings 25.300 19,300 43.300 Total shareholders' equity 47,300 Total liabilities and shareholders' equity $106.300 $ 69,000 Page 302 KITCHENWARE INC. Statement of Earnings For the Years Ended December 31 2020 2019 Sales revenue $980,000 $880,000 Cost of sales (640,000) (560.000) Gross profit 340,000 320,000 Operating expenses: Depreciation (15.200) (12.000) Selling and general (298,800) (288,000) Earnings from operations 26.000 20,000 Interest expense (9,600) (3,200) Loss on sale of furniture (1,200) -0- 800 -0- Gain on sale of investments Earnings before income taxes 16,000 16,800 Income tax expense (@25%) (4,000) (4,200) Net earnings $ 12.000 $ 12,600 Additional Information: a. During 2020, the company sold old furniture with an original cost of $5,000 and $3,200 of accumulated depreciation up to the date of sale. b. During 2020, the company sold one of the non-current investments that had cost $1,000. The gain on this sale is reported on the statement of earnings. c. The company considers short-term investments as cash equivalents. AP5-6 Appendices 5A and 95B) Preparing the Statement of Cash Flows with Sale of Equipment (Direct Method) P5-6) 105-S1, Ct5-S2 Refer to the information for Kitchenware Inc. in AP5-5. Required: 1. Prepare a statement of cash flows for Kitchenware Inc. for the year ended December 31, 2021. Use the direct method to report cash flows from operating activities. 2. Discuss the importance of the statement of cash flows to users of financial statements. What additional information does it provide that is not reported in the other financial statements? Explain by referring to the statement that you prepared in (1) above