SOLVED

3) Reuse It Inc.’s (RII) policy is to report all cash flows arising from interest and dividends in the operating section. The company’s activities for the year ended December 31, 2018 included the following: ?Comprehensive income totaled $468,000 including $88,000 in other comprehensive income. ?Paid a cash dividend of $30,000 that was declared in 2017. ?Interest expense for the year was $14,000; the opening and closing balances in the interest payable account were $28,000 and $19,000, respectively. ?Accounts receivable increased $63,000 and accounts payable decreased $19,000 during the year. ?RII paid $51,000 cash for equipment. ?RII sold held-to-maturity investments for $36,000. The book value of the investment was $39,000. ?Depreciation expense for the year totaled $9,000. ?Suffered an impairment loss on patents of $1 0,000. ?Declared and issued a 2-for-l stock split. There were 20,000 ordinary shares outstanding before the split with a collective market value of $3,000,000. Required: a. Prepare the cash flows from operating activities section of the statement of cash flows using the indirect method. b. Identify how the activities detailed above that are not operating activities would be reported in the statement of cash flows. 4) Financial information for Fesone Inc.’s balance sheet for fiscal 2017 and 2018 follows: 20182017 Cash204,800550,000 Accounts receivable1,150,0001,300,000 Inventory410,000250,000 Investments – held for trading400,000 Investments – held to maturity150,000 Property plant and equipment3,400,0003,400,000 Accumulated depreciation(1,860,000)(1,570,000) Total3,854,8003,930,000 Accounts payable260,00080,000 Bank loan2,226,0002,850,000 Bonds payable187,800185,000 Preferred shares015,000 Common shares597,000450,000 Retained earnings584,000350,000 Total3,854,8003,930,000 Additional information: 1. Preferred shares were converted to common shares during the year at their book value. 2. The face value of the bonds is $200,000; they pay a coupon rate of 6% per annum. The effective interest rate of interest is 8% per annum. 3. Net income was $290,000. 4. There was an ordinary stock dividend valued at $12,000 and cash dividends were also paid. 5. Interest expense for the year was $130,000. Income tax expense was $116,000. 6. Fesone arranged for a $200,000 bank loan to finance the purchase of the held-to-maturity investments. 7. Fesone has adopted a policy of reporting cash flows arising from the payment of interest and dividends as operating and financing activities, respectively. 8. Assume that Fesone designates the held-for-trading investment as a cash equivalent. Required: a. Prepare a statement of cash flows for the year ended December 31, 2018 using the indirect method. b. Discuss how the transaction(s) above that are not reported on the statement of cash flows are reported in the financial statements.