Angus Farms Ltd., which uses ASPE, had the following transactions during the fiscal year ending December 31, 2011.
1. On May 1, a used tractor was sold at auction. The information concerning this transaction included:
Original cost of the tractor ...............$52,000
Carrying amount of tractor at date of sale ......... 14,000
Cash proceeds obtained at sale ............ 22,500
2. After the seeding season, on June 15, 2011, a plough with an original cost of $6,000 and a carrying amount of $500 was discarded.
3. On September 1, 2011, a new plough was purchased for $7,700.
4. On December 30, a section of land was sold to a neighbouring farm called Clear Pastures Ltd. The original cost of the land was $45,000. To finance the purchase Clear Pastures gave Angus a three-year mortgage note in the amount of $75,000 that carries interest at 5%, with interest payable annually each December 30.
5. On December 31, 2011, depreciation was recorded on the farm equipment in the amount of $12,600.
(a) Prepare the journal entries that recorded the transactions during the year.
(b) Prepare the sections of the cash flow statement of Angus Farms Ltd. to report the transactions provided, using the indirect format.
(c) Prepare the sections of the cash flow statement of Angus Farms Ltd. to report the transactions provided, using the direct format.
(d) What results do you notice when comparing the information arrived at in parts (b) and (c) above?