Question
Sage Hill Inc.s CFO has just left the office of the company president after a meeting about the draft SFP at April 30, 2020, and
Sage Hill Inc.s CFO has just left the office of the company president after a meeting about the draft SFP at April 30, 2020, and income statement for the year then ended. (Both are reproduced below.) Our liquidity position looks healthy, the president had remarked. Look at the current and acid-test ratios, and the amount of working capital we have. And between the goodwill write off and depreciation, we have almost $23 million of non-cash expenses. I dont understand why youve been complaining about our cash situation. The CFO turns the draft financial statements over to you, the newest member of the accounting staff, along with extracts from the notes to the financial statements.
SAGE HILL INC. Consolidated Statement of Financial Position April 30, 2020, and 2019 (in $000s) | |||||||
Assets | 2020 | 2019 | |||||
Cash and 60-day treasury bills | $3,266 | $3,743 | |||||
Accounts receivable | 23,747 | 18,414 | |||||
Inventory | 26,085 | 21,569 | |||||
Income tax receivable | 145 | 0 | |||||
Prepaid expenses | 1,409 | 1,621 | |||||
54,652 | 45,347 | ||||||
Investments (Note 1) | 5,962 | 6,965 | |||||
Property, plant, and equipment (Note 2) | 37,331 | 45,699 | |||||
Deferred tax asset | 4,880 | 2,273 | |||||
Intangible assetsfranchises (Note 3) | 4,391 | 1,911 | |||||
Goodwill | 0 | 12,746 | |||||
$107,216 | $114,941 | ||||||
Liabilities | |||||||
Current | |||||||
Bank overdraft (temporary) | $ 7,539 | $ 6,356 | |||||
Accounts payable and accrued liabilities (Note 4) | 3,241 | 4,710 | |||||
Current portion of long-term debt | 1,800 | 1,200 | |||||
12,580 | 12,266 | ||||||
Long-term debt (Note 5) | 14,900 | 14,500 | |||||
Shareholders Equity | |||||||
Share capital (Note 6) | 78,257 | 62,965 | |||||
Retained earnings | 1,479 | 25,210 | |||||
79,736 | 88,175 | ||||||
$107,216 | $114,941 |
Consolidated Statement of Income and Retained Earnings Year Ended April 30, 2020, and 2019 (in $000s) | |||||||
Revenue | 2020 | 2019 | |||||
Sales revenue | $89,821 | $68,820 | |||||
Interest and other | 1,310 | 446 | |||||
91,131 | 69,266 | ||||||
Expenses | |||||||
Cost of goods sold | 53,400 | 40,101 | |||||
General and administrative | 10,415 | 10,982 | |||||
Salaries and wages expense | 26,624 | 24,500 | |||||
Depreciation and amortization | 10,220 | 11,709 | |||||
Loss on impairment (goodwill) | 12,746 | 0 | |||||
Interest | 1,298 | 1,530 | |||||
Loss on disposal of capital assets | 392 | 0 | |||||
115,095 | 88,822 | ||||||
Loss before equity loss and income tax | (23,964 | ) | (19,556 | ) | |||
Investment income (loss) (Note 1) | (2,519 | ) | 101 | ||||
Loss before income tax | (26,483 | ) | (19,455 | ) | |||
Income tax benefit | 2,752 | 5,161 | |||||
Net loss | (23,731 | ) | (14,294 | ) | |||
Retained earnings, beginning of year | 25,210 | 39,504 | |||||
Retained earnings, end of year | 1,479 | 25,210 |
Draft Notes to the Financial Statements | |||||||
For the Year Ended April 30, 2020 |
Note 1. Investments The companys investments at April 30 are as follows (in $000s):
2020 | 2019 | ||||||
Compuco Ltd. (fair value 2020, $4.3 million) | |||||||
Associates shares, opening balance at equity | $6,965 | $6,864 | |||||
Equity income (loss) | (2,519 | ) | 101 | ||||
Associates shares, ending balance at equity | 4,446 | 6,965 | |||||
Other investments, at amortized cost | 1,516 | 0 | |||||
$5,962 | $6,965 |
Note 2. Property, Plant, and Equipment Additions to property, plant, and equipment for the current year amounted to $2,291,000. Proceeds from the disposal of property, plant, and equipment amounted to $250,000. Note 3. Intangible AssetsFranchises Franchise fees are amortized over the term of 20 years using the straight-line method. Note 4. Accounts Payable and Accrued Liabilities (in $000s)
2020 | 2019 | ||||||
Accounts payablesuppliers | $3,100 | $4,560 | |||||
Salaries and wages payable | 141 | 150 | |||||
$3,241 | $4,710 |
Note 5. Long-Term Debt (in $000s)
2020 | 2019 | ||||||
Debentures | $12,500 | $12,500 | |||||
Bank term loans, due April 30, 2021, principal repayable at $150,000 a month (2019, at $100,000 a month) | 4,200 | 3,200 | |||||
16,700 | 15,700 | ||||||
Current maturities | (1,800 | ) | (1,200 | ) | |||
$14,900 | $14,500 |
Debentures bear interest at 9% per annum and are due in 2022. Bank term loans bear interest at 8% and the bank advanced $2.2 million during the year. Note 6. Share Capital On September 14, 2019, Sage Hill Inc. issued 3.8 million shares with special warrants. Net proceeds from issuing the 3.8 million shares amounted to $14,393,000. Net proceeds from issuing the 3.8 million warrants amounted to $899,000. Assume that Sage Hill Inc. follows IFRS and has adopted the policy of classifying interest paid and dividends received as operating activities, and dividends paid as financing activities.
Part 1
Prepare a statement of cash flows for the year ended April 30, 2020, on a non-comparative basis from the information provided. The CFO wants to use the direct method to report the companys operating cash flows this year. Include all required disclosures. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000). Do not leave any answer field blank. Enter "0" for amounts. Enter amounts in thousands.)
Sage Hill Inc. Consolidated Statement of Cash Flows For the Year Ended April 30, 2020For the Month Ended April 30, 2020April 30, 2020 |
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