Question

A major shareholder of Systems Unlimited Inc., Phil Paradis, is perplexed. The 2014 income statement showed a healthy net income of $280 thousand. Yet, when Sharron Lewis, the bank manager and a friend of Phil’s, called to let him know that the bank had just reviewed the March 31, 2014, statements, she had said, “Phil, I just wanted to give you a heads-up. We’re extremely concerned about the message your 2014 statement of cash flows is sending. We may have to call in the secured loan unless the new company manager, Martha Shewart, has some reasonable explanations. I’m phoning her next.”
When asked, Martha Shewart says, “That’s correct, Sharron. We sold some of the unsecured manufacturing equipment. It cost $245 thousand and we got $150 thousand. . . no, it didn’t go for book value; we incurred a loss of $50 thousand . . . where on the income statement? It’s in Other expenses . . . don’t worry, Sharron . . . a friend of mine, Ronald Trump, is going to sell us cheaper equipment . . . . it’s on order . . . I signed the contract and it will be delivered in April.” After the conversation, Martha Shewart slams the phone down and thinks, “I own 20% of the shares in this company; how dare anybody question my actions?!”


Required
1. Prepare a statement of cash flows (applying the indirect or direct method)* for the year ended March 31, 2014.
2. Using the elements of critical thinking described on the inside front cover,comment.


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  • CreatedJanuary 08, 2015
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