Question

Seneca Corporation, which uses IFRS, has contracted with you to prepare a statement of cash flows. The controller has provided the following information:
Additional data related to 2011 are as follows:
1. Equipment that cost $10,500 and was 50% depreciated at the time of disposal was sold for $2,600.
2. Common shares were issued to pay $10,000 of the long-term note payable.
3. Cash dividends paid were $6,000. Seneca has adopted the policy of classifying dividends paid as operating activities.
4. On January 1, 2011, a flood destroyed the building. Insurance proceeds on the building were $23,000.
5. Long-term investments in shares, reported at fair value with gains and losses in net income, were sold at $3,300 above their cost. The fair value of these investments at December 31, 2010, equalled their original cost.
6. Cash of $17,000 was paid to acquire equipment.
7. A long-term note for $15,500 was issued in exchange for equipment.
8. Interest of $2,200 and income taxes of $5,600 were paid in cash. Seneca has adopted the policy of classifying interest paid as financing activities.
Instructions
(a) Use the indirect method to analyze the above information and prepare a statement of cash flows for Seneca.
(b) Prepare a reconciliation of the change in property, plant, and equipment’s carrying amount to the amounts appearing on the statement of cash flows and corresponding notes.
(c) Financial statement preparers often use reconciliations of changes in major categories of balance sheet accounts to balance the statement of cash flows, as required in part (b) above. What additional insight does this reconciliation reveal to a reader of the statement that is not as evident from the statement of cash flows?
(d) Prepare a short analysis of Seneca’s cash flow activity for 2011. The analysis is to be given to the controller.
(e) What choices, if any, are available for classifications for interest and dividends paid or received by Seneca?
(f) What kind of company would you expect to be revealed by the operating, investing, and financing sections of Seneca’s statement of cash flows: a company that is severely troubled financially or a recently formed company that is experiencing rapid growth?


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  • CreatedAugust 23, 2015
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