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10) Financial information for Fesone Inc.’s balance sheet for fiscal 2018 and 2017 follows: 20182017 Cash32,300350,000 Accounts receivable1,670,0001,800,000 Inventory710,000450,000 Investments – held for trading350,0000 Investments – held to maturity150,0000 Property plant and equipment4,000,0004,000,000 Accumulated depreciation(1,935,000)(1,660,000) Total4,977,3004,940,000 Accounts payable220,00040,000 Bank loan2,601,0003,000,000 Bonds payable595,300590,000 Preferred shares020,000 Common shares473,000350,000 Retained earnings1,088,000940,000 Total4,977,3004,940,000 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 $600,000; they pay a coupon rate of 6% per annum. The effective interest rate of interest is 7% per annum. 3. Net income was $205,000. 4. There was an ordinary stock dividend valued at $13,000 and cash dividends were also paid. 5. Interest expense for the year was $115,000. Income tax expense was $61,500. 6. Fesone arranged for a $425,000 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. The held-for-trading investments are not cash equivalents. 9. Sales = 2,000,000; cost of goods sold = 300,000; and, sales and administration expenses = 1,043,500 Required: a. Prepare the cash flows from operating activities section of the statement of cash flows using the direct method. b. Explain the difference between the direct method and the indirect method. 11) Hoboken’s activities for the year ended December 31, 2018 included the following: ?Sold a held-for-trading investment for $12,000. The book value was $10,000. ?Sold an available-for-sale investment for $8,000. The book value was $9,000. Using the direct method, how much would be presented as cash flow from operations for the “held for trading” investment? A) Proceeds from sale of held for trading investment in the amount of 12,000. B) Disposal of held for trading investment in the amount 10,000. C) Gain on sale of held for trading investment in the amount 2,000. D) Loss on sale of held for trading investment in the amount 2,000. 12) The activities for the year ended December 31, 2018 included the following: ?Sold a held-for-trading investment for $10,000. The book value was $15,000. ?Sold an available-for-sale investment for $10,000. The book value was $5,000. Using the indirect method, how much would be presented as cash flow from operating activities? A) Proceeds from disposal in the amount of 10,000. B) Proceeds from disposal in the amount of 20,000. C) Loss on sale in the amount 5,000. D) Adjustment of $5,000 on loss and Adjustment of $(5,000) on gain and +$10,000 from proceeds of HFT investment. 13) Suzanne Inc.’s policy is to report all cash flows arising from interest and dividends in the operating activities section. The activities for the year ended December 31, 2018 included the following: ?Interest revenue for the period was $12,000. The interest receivable account decreased $3,000. ?Sold an available-for-sale investment for $10,000. The book value was $5,000. Using the indirect method, how much would be presented as cash flow from operating activities? A) Proceeds from disposal in the amount of 10,000 + Interest received in the amount of 12,000. B) Proceeds from disposal in the amount of 10,000 + Interest received in the amount of 15,000. C) Gain on sale in the amount 5,000 + Interest received in the amount of 12,000. D) Adjustment to Net Income of -5,000 for gain on sale + Interest cash flow of +15,000. 14) The activities for the year ended December 31, 2018 included the following: ?2018’s net income after taxes totaled $125,000. ?Accounts receivable Increased $32,000 ?Recorded a $10,000 goodwill impairment loss during the year ?Inventory decreased $8,000 How much would be presented as cash flow from operations? A) $85,000 B) $111,000 C) $127,000 D) $135,000 15) The Company’s activities for the year ended December 31, 2018 included the following: ?Income tax expense for the year was $30,000. ?Sales for the year were $650,000. ?Accounts payable decreased $10,000 in 2018. ?Selling and administration expenses for the year totaled $200,000. ?Accounts receivable increased $20,000 in 2018. ?The Company’s cost of goods sold in 2018 was $325,000. ?The Company’s inventory decreased $15,000 during the year. What is the cash receipts from customers under the direct method? A) $110,000 B) $320,000 C) $670,000 D) $630,000 16) The Company’s activities for the year ended December 31, 2018 included the following: ?Income tax expense for the year was $30,000. ?Sales for the year were $650,000. ?Accounts payable decreased $10,000 in 2018. ?Selling and administration expenses for the year totaled $200,000. ?Accounts receivable increased $20,000 in 2018. ?The Company’s cost of goods sold in 2018 was $325,000. ?The Company’s inventory increased $15,000 during the year. ?Depreciation expense for the year was $13,000. What is the net cash payments to suppliers under the direct method? A) $307,000 B) $-315,000 C) $320,000 D) -$350,000 17) A company’s activities for the year ended December 31, 2018 included the following: ?Declared and issued a stock dividend valued at $50,000. ?Paid $975,000 to repurchase bonds. The book value of the bonds was $1,000,000. ?Made a $20,000 principal payment on a bank loan. How much will be presented as cash flow from financing activities? A) $955,000 B) -$975,000 C) $980,000 D) -$995,000

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