Question: Guas Inc., a major retailer of bicycles
Guas 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 Guas as at May 31, 2020, are as follows: 
The following is additional information about transactions during the year ended May 31, 2020, for Guas Inc., which follows IFRS. 1. Plant assets costing $95,000 were purchased by paying $44,000 in cash and issuing 5,000 common shares. 2. The “other expenses†relate to prepaid items. 3. In order to supplement its cash, Guas issued 4,000 additional common shares. 4. There were no penalties assessed for the repayment of the mortgage. 5. Cash dividends of $78,000 were declared and paid at the end of the fiscal year. Instructions a. Compare and contrast the direct method and the indirect method for reporting cash flows from operating activities. b. Prepare a statement of cash flows for Guas Inc. for the year ended May 31, 2020, using the direct method. Support the statement with appropriate calculations, and provide all required disclosures. c. Using the indirect method, calculate only the net cash flow from operating activities for Guas Inc. for the year ended May 31, 2020. d. Does Guas Inc. have a choice in how it classifies dividends paid on the statement of cash flows? e. Assume that you are a shareholder of Guas Inc. What do you think of the dividend payout ratio that is highlighted in the statement of cash flows?
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Guas Inc. Statement of Financial Position As at May 31 2020 2019 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 Salaries and wages payable $123,000 $115,000 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 Total sharcholders' equity 134,600 71,500 470,350 351,500 Total liabilities and shareholders' equity $754,050 $661,100 Guas Inc. Income Statement For the Year Ended May 31, 2020 Sales revenue $1,345,800 Cost of goods sold Gross margin 814,000 531,800 Expenses Salaries and wages expense 207,800 Interest expense Other operating expenses 66,700 24,800 depreciation expense Total operating expenses Operating income 26,000 325.300 206,500 Income tax expense 65,400 Net earnings $ 141,100
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