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Question 6 [25 marks] Adam Smith, the Director of Ade Inc has made the declaration to the Shareholders that no dividend will be paid this
Question 6 [25 marks] Adam Smith, the Director of Ade Inc has made the declaration to the Shareholders that no dividend will be paid this vear despite the company makinq a siqnificant profit. In addition, the company has a significant overdraft and one shareholder has been overheard in the meeting saying "something fishy going on round here" The Director summoned you to a meeting to assist him in the preparation of a response to the shareholders. He presented the financial statements below: Question 6 continued The company reported net income during 2018 as follows: The following information is available about the company's activities during 2018 , the current year. a) A payment of $75,000 was made on the mortqage. b) Long-term notes with a value of $380,000 were repaid during the year. c) Equipment was sold during the year for $70,000. The equipment has a cost of $130,000 and had $40,000 in accumulated depreciation to the date of sale. d) Long-term investments were sold during the year for $110,000. These investments had cost $50,000 when purchased several years ago. Required: a) Prepare a statement of cash flows using the indirect method which the Director can use to explain to the shareholders the changes in cash over the year. [20 marks] b) Explain to the shareholders the difference between net income and net cash from operating activities. [5 marks] Question 6 [25 marks] Adam Smith, the Director of Ade Inc has made the declaration to the Shareholders that no dividend will be paid this vear despite the company makinq a siqnificant profit. In addition, the company has a significant overdraft and one shareholder has been overheard in the meeting saying "something fishy going on round here" The Director summoned you to a meeting to assist him in the preparation of a response to the shareholders. He presented the financial statements below: Question 6 continued The company reported net income during 2018 as follows: The following information is available about the company's activities during 2018 , the current year. a) A payment of $75,000 was made on the mortqage. b) Long-term notes with a value of $380,000 were repaid during the year. c) Equipment was sold during the year for $70,000. The equipment has a cost of $130,000 and had $40,000 in accumulated depreciation to the date of sale. d) Long-term investments were sold during the year for $110,000. These investments had cost $50,000 when purchased several years ago. Required: a) Prepare a statement of cash flows using the indirect method which the Director can use to explain to the shareholders the changes in cash over the year. [20 marks] b) Explain to the shareholders the difference between net income and net cash from operating activities. [5 marks]
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