Financial Information for Fesone Inc Additional Information:
1

question 7

Essay

Financial information for Fesone Inc.'s balance sheet for fiscal 2013 and 2014 follows:
$\begin{array}{lll}&\textbf{2014}&\textbf{2013}\\\\\text { Cash } & 204,800 & 550,000 \\\\\text { Accounts receivable } & 1,150,000 & 1,300,000 \\\\\text { Inventory } & 410,000 & 250,000 \\\\\text { Investments - held for trading } & 400,000 & \\\\\text { Investments - held to maturity } & 150,000 & \\\\\text { Property plant and equipment } & 3,400,000 & 3,400,000 \\\\\text { Accumulated depreciation } & (1,860,000) & (1,570,000) \\\\\text { Total } & \mathbf{3 , 8 5 4 , 8 0 0} & \mathbf{3 , 9 3 0 , 0 0 0}\end{array}$ $\begin{array}{lll}\text { Accounts payable } & 260,000 & 80,000 \\\\\text { Bank loan } & 2,226,000 & 2,850,000 \\\\\text { Bonds payable } & 187,800 & 185,000 \\\\\text { Preferred shares } & 0 & 15,000 \\\\\text { Common shares } & 597,000 & 450,000 \\\\\text { Retained earnings } & 584,000 & 350,000 \\\\\text { Total } & \mathbf{3 , 8 5 4 , 8 0 0} & \mathbf{3 , 9 3 0 , 0 0 0}\end{array}$ Additional information:
1.Preferred shares were converted to common shares during the year at their book value.
2.The face value of the bonds is $200,000; they pay a coupon rate of 6% per annum.The effective interest rate of interest is 8% per annum.
3.Net income was $290,000.
4.There was an ordinary stock dividend valued at $12,000 and cash dividends were also paid.
5.Interest expense for the year was $130,000.Income tax expense was $116,000.
6.Fesone arranged for a $200,000 bank loan to finance the purchase of the held-to-maturity investments.
7.Fesone has adopted a policy of reporting cash flows arising from the payment of interest and dividends as operating and financing activities,respectively.
8.The held-for-trading investments are not cash equivalents.
Requirements:
a.Prepare a statement of cash flows for the year ended December 31,2014 using the indirect method.
b.Discuss how the transaction(s)above that are not reported on the statement of cash flows are reported in the financial statements.

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Definitions:

Liquidating

The process of converting a company's assets into cash and distributing it to the debt holders and shareholders during the winding up of the company.

Capital Account Balances

The values recorded in a country's or organization's financial accounts, related to capital assets and liabilities.

Profit and Loss Sharing

An arrangement in business and finance where profits and losses are shared among partners or stakeholders, commonly used in Islamic finance.