Quiz: 2, Marks: 20, Time: 30 Minutes

Question (14+3+3=20)
Below are Mortimer Limited’s income statement for the year ended December 31, 2018 and the
company’s comparative statements of financial position at December 31, 2017 and 2018,
respectively.
Income Statement 2018
Sales revenue 390,000
Cost of goods sold (220,000)
Other operating expenses (including depreciation) (60,000)
Gain on sale of land 7,000
Loss on sale of equipment (1,500)
Interest expense (9,000)
Income tax expense (25,000)
Profit 81,500

Balance Sheet 2018 2017

Cash 32,000 63,000
Trade receivables 19,000 14,000
Merchandise inventory 6,000 9,000
Prepaid operating expenses 1,000 3,000
Land 84,000 112,000
Building 62,000 44,000
Accumulated depreciation – Building (6,600) (3,000)
Equipment 16,000 9,000
Accumulated depreciation – Equipment (3,000) (2,000)
Trade payables 9,400 36,000
Interest payable 2,000 3,000
Income tax payable 5,000 1,000
Bonds payable, at par 30,000 40,000
Share capital 40,000 30,000
Retained earnings 124,000 139,000

Other Information:
 Depreciation expense consists of $3,600 for the building and $2,000 for the equipment.
 Mortimer disposed of land for cash (amount can be derived). No land was acquired.
 Mortimer constructed an extension to its building for cash. No other activity affected the
Building account.
 Equipment with a cost of $12,000 was purchased for cash. Old equipment was sold for cash
(amount can be derived).
 Trade payables relate exclusively to transactions with suppliers of merchandise inventory.
 Bondholders exchanged $10,000 par value bonds for common shares of Mortimer Limited.
 Ninety-percent (90%) of Mortimer's sales are on account; the remainder are for cash. No
discounts are offered.

Requirements:

a. Use the indirect method to calculate the cash flow for preparing the Statement of Cash Flows
for Mortimer Limited for the year ended December 31, 2018.
b. Cash collected from customers and
c. Payments to suppliers of merchandise inventory