Sheffield Inc., a major retailer of bicycles and accessories, operates several stores and is a publicly traded
Question:
Sheffield Inc., a major retailer of bicycles and accessories, operates several stores and is a publicly traded company. The company is currently preparing its statement of cash flows. The comparative statement of financial position and income statement for Sheffield as at May 31, 2018 are as follows:
Sheffield Inc. | ||
Statement of Financial Position | ||
As at May 31 | ||
2018 | 2017 | |
Current assets | ||
Cash | $ 33,250 | $ 20,000 |
Accounts receivable | 74,800 | 55,600 |
Inventory | 188,700 | 199,000 |
Prepaid expenses | 8,800 | 7,000 |
Total current assets | 305,550 | 281,600 |
Plant assets | 596,500 | 501,500 |
Less: Accumulated depreciation | 148,000 | 122,000 |
Net plant assets | 448,500 | 379,500 |
Total assets | $754,050 | $661,100 |
Current liabilities | ||
Accounts payable | $123,000 | $115,000 |
Salaries and wages payable | 61,000 | 72,000 |
Interest payable | 24,700 | 22,600 |
Total current liabilities | 208,700 | 209,600 |
Mortgage payable | 75,000 | 100,000 |
Total liabilities | 283,700 | 309,600 |
Shareholders’ equity | ||
Common shares | 335,750 | 280,000 |
Retained earnings | 134,600 | 71,500 |
Total shareholders’ equity | 470,350 | 351,500 |
Total liabilities and shareholders’ equity | $754,050 | $661,100 |
Sheffield Inc. | |
Income Statement | |
For the Year Ended May 31, 201 | 8 |
Sales | $1,345,800 |
Cost of goods sold | 814,000 |
Gross margin | 531,800 |
Expenses | |
Salaries and wages expense | 207,800 |
Interest expense | 66,700 |
Other operating expenses | 24,800 |
Depreciation expense | 26,000 |
Total operating expenses | 325,300 |
Operating income | 206,500 |
Income tax expense | 65,400 |
Net earnings | $141,100 |
The following is additional information about transactions during the year ended May 31, 2018 for Sheffield Inc., which follows IFRS:
a. Plant assets costing $95,000 were purchased by paying $44,000 in cash and issuing 5,000 common shares.
b. The “other expenses” relate to prepaid items.
c. In order to supplement its cash, Sheffield issued 4,000 additional common shares.
d. There were no penalties assessed for the repayment of mortgage.
e. Cash dividends of $78,000 were declared and paid at the end of the fiscal year.
Required:
1. Prepare a statement of cash flows for Sheffield Inc. for the year ended May 31, 2018, using the direct method. Support the statement with appropriate calculations, and provide all required disclosures.
2. Using the indirect method, calculate only the net cash flow from operating activities for Sheffield for the year ended May 31, 2018.
3. Assume that you are a shareholder of Sheffield Inc. What do you think of the dividend payout ratio that is highlighted in the statement of cash flows?
Intermediate Accounting IFRS
ISBN: 9781119607519
4th Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield