Question 5. Bonus questions.

Explain in your own words, why you think a company might or would want to (fraudulently) overstate cash flow from their Operating Activities? (4 marks)

Referring back to Farmiga Inc. Question 4 data, calculate the earnings per share (EPS) for 2014. (2 marks)

If bondholders were able to convert their bonds into 6,000 common shares, and company executives had exercisable stock options available for an additional 5,000 shares, what would Farmigas fully diluted EPS be for 2014? (2 marks)

**Question 4 Below**

Question 4 (14 marks) Farmiga Inc. Balance Sheet December 31 2014 2013 Assets Cash $120,600 $176,400 Accounts Receivable 181,800 135,000 Inventory 369,000 257,400 Long-term Debt Investment 176,400 0 Property Plant and Equipment 1,008,000 828,000 Less: Accumulated Depreciation (292,500) (252,000) $1,563,300 $1,144,800 Liabilities & Shareholder's Equity Accounts Payable $157,500 $117,000 Dividends Payable 10,800 0 Income Tax Payable 25,200 28,800 Long-term Notes Payable 81,000 0 Common Shares 1,170,000 945,000 Retained Earnings 118,800 54,000 $1,563,300 $1,144,800 Farmiga Inc. Income Statement Year Ended December 31, 2014 Sales $1,137,600 Cost of Goods Sold 772,200 Gross profit 365,400 Operating expenses $265,500 Loss on Sale of Equipment 3,600 269,100 Profit from Operations 96,300 Interest expense 5,400 Interest revenue 9,900 4,500 Profit before Income Tax 100,800 Income tax expense 25,200 Profit $75,600

Question 4 (continued)

Required: Prepare a complete Statement of Cash Flow using the Indirect method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional Information: 1 Cash Dividends of $10,800 were declared on December 31, 2014, payable January 15, 2015 2 A long term debt investment was acquired for cash at a cost of $175,500 3 Depreciation expense is included in the operating expenses. 4 The company issued 22,500 common shares for cash on March 31, 2014. The fair value of the shares were $10 per share. The proceeds were used to purchase additional equipment 5 Equipment that originally cost $45,000 was sold during the year for cash. The equipment had a net book value of $16,200 at the time of sale. 6 The company issued a note payable for $90,000 and repaid $9,000 of it by year end. 7 Accounts Payable is used for Merchandise purchases, Accounts Receivable relate to Sales 8 65,625 shares were outstanding Dec. 31, 2013. 15,625 more common shares were issued Aug 31/2014 9 Westerner Inc. is a private company reporting under ASPE.