Question

Marin Inc.’s CFO has just left the office of the company president after a meeting about the draft SFP at April 30, 2020, and income statement for the year then ended. (Both are reproduced below.) “Our liquidity position looks healthy,” the president had remarked. “Look at the current and acid-test ratios, and the amount of working capital we have. And between the goodwill write off and depreciation, we have almost $23 million of non-cash expenses. I don’t understand why you’ve been complaining about our cash situation.”

The CFO turns the draft financial statements over to you, the newest member of the accounting staff, along with extracts from the notes to the financial statements.

MARIN INC. Consolidated Statement of Financial Position April 30, 2020, and 2019 (in $000s)
Assets			2020			2019
Cash and 60-day treasury bills			$3,267			$3,745
Accounts receivable			23,744			18,404
Inventory			26,078			21,568
Income tax receivable			145			0
Prepaid expenses			1,393			1,603
			54,627			45,320
Investments (Note 1)			5,976			6,971
Property, plant, and equipment (Note 2)			37,328			45,695
Deferred tax asset			4,874			2,256
Intangible assets—franchises (Note 3)			4,391			1,911
Goodwill			0			12,740
			$107,196			$114,893
Liabilities
Current
	Bank overdraft (temporary)		$ 5,886			$ 6,306
	Accounts payable and accrued liabilities (Note 4)		3,243			4,712
	Current portion of long-term debt		1,800			1,200
			10,929			12,218
Long-term debt (Note 5)			14,900			14,500
Shareholders’ Equity
Share capital (Note 6)			78,257			62,965
Retained earnings			3,110			25,210
			81,367			88,175
			$107,196			$114,893

Consolidated Statement of Income and Retained Earnings Year Ended April 30, 2020, and 2019 (in $000s)
Revenue			2020			2019
	Sales revenue		$89,821			$68,820
	Interest and other		1,310			446
			91,131			69,266
Expenses
	Cost of goods sold		51,800			38,510
	General and administrative		10,415			10,982
	Salaries and wages expense		26,624			24,500
	Depreciation and amortization		10,220			11,709
	Loss on impairment (goodwill)		12,740			0
	Interest		1,285			1,515
	Loss on disposal of capital assets		399			0
			113,483			87,216
Loss before equity loss and income tax			(22,352	)		(17,950	)
Investment income (loss) (Note 1)			(2,511	)		93
Loss before income tax			(24,863	)		(17,857	)
Income tax benefit			2,763			5,161
Net loss			(22,100	)		(12,696	)
Retained earnings, beginning of year			25,210			37,906
Retained earnings, end of year			3,110			25,210

Draft Notes to the Financial Statements

For the Year Ended April 30, 2020

Note 1. Investments

The company’s investments at April 30 are as follows (in $000s):

			2020			2019
Compuco Ltd. (fair value 2020, $4.3 million)
	Associate’s shares, opening balance at equity		$6,971			$6,878
	Equity income (loss)		(2,511	)		93
	Associate’s shares, ending balance at equity		4,460			6,971
Other investments, at amortized cost			1,516			0
			$5,976			$6,971

Note 2. Property, Plant, and Equipment

Additions to property, plant, and equipment for the current year amounted to $2,289,000. Proceeds from the disposal of property, plant, and equipment amounted to $250,000.

Note 3. Intangible Assets—Franchises

Franchise fees are amortized over the term of 20 years using the straight-line method.

Note 4. Accounts Payable and Accrued Liabilities (in $000s)

			2020			2019
Accounts payable—suppliers			$3,102			$4,562
Salaries and wages payable			141			150
			$3,243			$4,712

Note 5. Long-Term Debt (in $000s)

			2020			2019
Debentures			$12,500			$12,500
Bank term loans, due April 30, 2021, principal repayable at $150,000 a month (2019, at $100,000 a month)			4,200			3,200
			16,700			15,700
Current maturities			(1,800	)		(1,200	)
			$14,900			$14,500

Debentures bear interest at 9% per annum and are due in 2022. Bank term loans bear interest at 8% and the bank advanced $2.2 million during the year.

Note 6. Share Capital

On September 14, 2019, Marin Inc. issued 3.8 million shares with special warrants. Net proceeds from issuing the 3.8 million shares amounted to $14,393,000. Net proceeds from issuing the 3.8 million warrants amounted to $899,000.

Assume that Marin Inc. follows IFRS and has adopted the policy of classifying interest paid and dividends received as operating activities, and dividends paid as financing activities.

Part 1

Prepare a statement of cash flows for the year ended April 30, 2020, on a non-comparative basis from the information provided. The CFO wants to use the direct method to report the company’s operating cash flows this year. Include all required disclosures. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000). Do not leave any answer field blank. Enter "0" for amounts. Enter amounts in thousands.)

Marin Inc. Consolidated Statement of Cash Flows                                                                        For the Month Ended April 30, 2020For the Year Ended April 30, 2020April 30, 2020
Cash Flows from Investing ActivitiesNet Increase in CashNet Cash Provided by Investing ActivitiesCash Flows from Financing ActivitiesCash and Cash Equivalents, May 1, 2019Net Cash Used by Financing ActivitiesNet Cash Used by Operating ActivitiesNet Cash Provided by Financing ActivitiesCash and Cash Equivalents, April 30, 2020Net Cash Provided by Operating ActivitiesNet Decrease in CashCash Flows from Operating ActivitiesNet Cash Used by Investing Activities
Cash Received for InterestProceeds from Issuance of SharesCash Paid to SuppliersPurchase of Other InvestmentsProceeds from Sale of WarrantsRepayments of Bank term LoansInterest PaidIncome Taxes PaidPayments for Franchise FeesProceeds from Bank term LoansProceeds from Sale of Property Plant and EquipmentCash Paid for Other Operating ExpensesSale of Other InvestmentsPayments for Goods and ServicesPayments to and on Behalf of EmployeesCash Received from CustomersPurchase of Capital Assets		$
Cash Received for InterestProceeds from Sale of Property Plant and EquipmentCash Paid to SuppliersProceeds from Issuance of SharesInterest PaidPurchase of Capital AssetsCash Received from CustomersProceeds from Bank term LoansPayments for Franchise FeesPayments for Goods and ServicesCash Paid for Other Operating ExpensesPayments to and on Behalf of EmployeesProceeds from Sale of WarrantsSale of Other InvestmentsPurchase of Other InvestmentsIncome Taxes PaidRepayments of Bank term Loans
				$
Cash Received for InterestSale of Other InvestmentsProceeds from Bank term LoansProceeds from Sale of WarrantsCash Received from CustomersProceeds from Sale of Property Plant and EquipmentCash Paid to SuppliersPayments for Franchise FeesPurchase of Capital AssetsPayments for Goods and ServicesPurchase of Other InvestmentsIncome Taxes PaidCash Paid for Other Operating ExpensesPayments to and on Behalf of EmployeesProceeds from Issuance of SharesInterest PaidRepayments of Bank term Loans
Income Taxes PaidPurchase of Other InvestmentsCash Paid for Other Operating ExpensesProceeds from Sale of Property Plant and EquipmentSale of Other InvestmentsCash Received from CustomersPurchase of Capital AssetsProceeds from Issuance of SharesProceeds from Sale of WarrantsPayments to and on Behalf of EmployeesInterest PaidRepayments of Bank term LoansPayments for Goods and ServicesProceeds from Bank term LoansPayments for Franchise FeesCash Received for InterestCash Paid to Suppliers
Repayments of Bank term LoansCash Paid for Other Operating ExpensesProceeds from Bank term LoansPurchase of Other InvestmentsPurchase of Capital AssetsPayments for Goods and ServicesCash Paid to SuppliersPayments for Franchise FeesProceeds from Sale of Property Plant and EquipmentProceeds from Issuance of SharesPayments to and on Behalf of EmployeesIncome Taxes PaidSale of Other InvestmentsCash Received for InterestInterest PaidProceeds from Sale of WarrantsCash Received from Customers
Sale of Other InvestmentsInterest PaidPayments for Franchise FeesCash Paid to SuppliersProceeds from Issuance of SharesProceeds from Sale of WarrantsIncome Taxes PaidCash Received from CustomersPurchase of Other InvestmentsProceeds from Sale of Property Plant and EquipmentCash Received for InterestRepayments of Bank term LoansCash Paid for Other Operating ExpensesPayments to and on Behalf of EmployeesProceeds from Bank term LoansPayments for Goods and ServicesPurchase of Capital Assets
Proceeds from Sale of WarrantsCash Received from CustomersInterest PaidPayments for Franchise FeesPurchase of Other InvestmentsCash Received for InterestCash Paid to SuppliersSale of Other InvestmentsPayments for Goods and ServicesProceeds from Sale of Property Plant and EquipmentCash Paid for Other Operating ExpensesRepayments of Bank term LoansPayments to and on Behalf of EmployeesProceeds from Issuance of SharesIncome Taxes PaidProceeds from Bank term LoansPurchase of Capital Assets
Net Cash Provided by Investing ActivitiesNet Cash Used by Operating ActivitiesNet Increase in CashCash Flows from Investing ActivitiesNet Decrease in CashNet Cash Provided by Operating ActivitiesNet Cash Used by Investing ActivitiesCash and Cash Equivalents, April 30, 2020Cash and Cash Equivalents, May 1, 2019Net Cash Provided by Financing ActivitiesNet Cash Used by Financing ActivitiesCash Flows from Operating ActivitiesCash Flows from Financing Activities
Cash Flows from Investing ActivitiesNet Cash Used by Financing ActivitiesNet Cash Provided by Investing ActivitiesNet Cash Provided by Financing ActivitiesNet Cash Used by Operating ActivitiesCash and Cash Equivalents, April 30, 2020Cash and Cash Equivalents, May 1, 2019Net Decrease in CashNet Increase in CashNet Cash Used by Investing ActivitiesNet Cash Provided by Operating ActivitiesCash Flows from Operating ActivitiesCash Flows from Financing Activities
Cash Paid to SuppliersCash Received from CustomersPayments for Goods and ServicesIncome Taxes PaidPayments for Franchise FeesPurchase of Other InvestmentsProceeds from Issuance of SharesInterest PaidProceeds from Bank term LoansCash Paid for Other Operating ExpensesPayments to and on Behalf of EmployeesPurchase of Capital AssetsCash Received for InterestSale of Other InvestmentsRepayments of Bank term LoansProceeds from Sale of WarrantsProceeds from Sale of Property Plant and Equipment
Proceeds from Issuance of SharesSale of Other InvestmentsInterest PaidIncome Taxes PaidProceeds from Sale of Property Plant and EquipmentCash Received from CustomersCash Received for InterestPurchase of Capital AssetsPayments for Franchise FeesCash Paid for Other Operating ExpensesCash Paid to SuppliersPurchase of Other InvestmentsProceeds from Sale of WarrantsRepayments of Bank term LoansProceeds from Bank term LoansPayments to and on Behalf of EmployeesPayments for Goods and Services
Payments for Franchise FeesInterest PaidCash Paid for Other Operating ExpensesPurchase of Other InvestmentsPayments to and on Behalf of EmployeesProceeds from Sale of WarrantsCash Received for InterestSale of Other InvestmentsCash Paid to SuppliersIncome Taxes PaidProceeds from Sale of Property Plant and EquipmentPurchase of Capital AssetsProceeds from Bank term LoansPayments for Goods and ServicesProceeds from Issuance of SharesRepayments of Bank term LoansCash Received from Customers
Proceeds from Bank term LoansSale of Other InvestmentsPayments to and on Behalf of EmployeesPurchase of Capital AssetsProceeds from Sale of WarrantsProceeds from Issuance of SharesPayments for Goods and ServicesRepayments of Bank term LoansProceeds from Sale of Property Plant and EquipmentPayments for Franchise FeesIncome Taxes PaidInterest PaidCash Paid for Other Operating ExpensesCash Received for InterestPurchase of Other InvestmentsCash Paid to SuppliersCash Received from Customers
Net Increase in CashNet Cash Provided by Investing ActivitiesNet Cash Used by Investing ActivitiesCash Flows from Financing ActivitiesNet Cash Provided by Operating ActivitiesCash and Cash Equivalents, April 30, 2020Net Cash Used by Financing ActivitiesNet Cash Used by Operating ActivitiesCash and Cash Equivalents, May 1, 2019Cash Flows from Investing ActivitiesCash Flows from Operating ActivitiesNet Decrease in CashNet Cash Provided by Financing Activities
Net Decrease in CashNet Increase in CashNet Cash Used by Investing ActivitiesCash Flows from Operating ActivitiesNet Cash Used by Operating ActivitiesCash and Cash Equivalents, May 1, 2019Cash and Cash Equivalents, April 30, 2020Net Cash Provided by Financing ActivitiesNet Cash Used by Financing ActivitiesCash Flows from Financing ActivitiesNet Cash Provided by Investing ActivitiesNet Cash Provided by Operating ActivitiesCash Flows from Investing Activities
Cash Paid to SuppliersProceeds from Sale of WarrantsCash Paid for Other Operating ExpensesProceeds from Bank term LoansPayments for Goods and ServicesSale of Other InvestmentsPayments to and on Behalf of EmployeesCash Received for InterestIncome Taxes PaidPurchase of Capital AssetsCash Received from CustomersPurchase of Other InvestmentsProceeds from Sale of Property Plant and EquipmentRepayments of Bank term LoansProceeds from Issuance of SharesPayments for Franchise FeesInterest Paid
Payments for Goods and ServicesCash Received for InterestPurchase of Capital AssetsSale of Other InvestmentsCash Received from CustomersCash Paid for Other Operating ExpensesRepayments of Bank term LoansProceeds from Bank term LoansCash Paid to SuppliersProceeds from Issuance of SharesProceeds from Sale of WarrantsIncome Taxes PaidPayments for Franchise FeesPurchase of Other InvestmentsInterest PaidProceeds from Sale of Property Plant and EquipmentPayments to and on Behalf of Employees
Purchase of Other InvestmentsPurchase of Capital AssetsProceeds from Sale of WarrantsIncome Taxes PaidPayments for Franchise FeesPayments to and on Behalf of EmployeesProceeds from Sale of Property Plant and EquipmentCash Received from CustomersProceeds from Issuance of SharesCash Received for InterestCash Paid for Other Operating ExpensesSale of Other InvestmentsRepayments of Bank term LoansProceeds from Bank term LoansInterest PaidCash Paid to SuppliersPayments for Goods and Services
Proceeds from Sale of WarrantsPurchase of Capital AssetsPayments for Franchise FeesInterest PaidCash Received for InterestPayments for Goods and ServicesPayments to and on Behalf of EmployeesCash Paid for Other Operating ExpensesProceeds from Sale of Property Plant and EquipmentRepayments of Bank term LoansProceeds from Issuance of SharesProceeds from Bank term LoansCash Paid to SuppliersPurchase of Other InvestmentsIncome Taxes PaidCash Received from CustomersSale of Other Investments
Net Increase in CashCash and Cash Equivalents, April 30, 2020Net Cash Provided by Operating ActivitiesCash Flows from Operating ActivitiesCash Flows from Investing ActivitiesNet Cash Used by Financing ActivitiesNet Decrease in CashNet Cash Used by Operating ActivitiesNet Cash Provided by Financing ActivitiesNet Cash Provided by Investing ActivitiesNet Cash Used by Investing ActivitiesCash and Cash Equivalents, May 1, 2019Cash Flows from Financing Activities
Net Cash Provided by Investing ActivitiesCash and Cash Equivalents, April 30, 2020Net Cash Used by Financing ActivitiesCash Flows from Financing ActivitiesNet Cash Used by Operating ActivitiesNet Cash Provided by Operating ActivitiesNet Cash Used by Investing ActivitiesNet Decrease in CashCash and Cash Equivalents, May 1, 2019Net Increase in CashCash Flows from Operating ActivitiesCash Flows from Investing ActivitiesNet Cash Provided by Financing Activities
Net Cash Provided by Financing ActivitiesCash Flows from Financing ActivitiesNet Decrease in CashCash Flows from Investing ActivitiesNet Cash Used by Financing ActivitiesCash and Cash Equivalents, May 1, 2019Net Cash Provided by Operating ActivitiesNet Cash Provided by Investing ActivitiesCash Flows from Operating ActivitiesCash and Cash Equivalents, April 30, 2020Net Cash Used by Operating ActivitiesNet Cash Used by Investing ActivitiesNet Increase in Cash
Net Cash Used by Operating ActivitiesCash and Cash Equivalents, May 1, 2019Net Cash Used by Investing ActivitiesCash Flows from Investing ActivitiesNet Decrease in CashNet Cash Used by Financing ActivitiesNet Increase in CashCash and Cash Equivalents, April 30, 2020Net Cash Provided by Operating ActivitiesCash Flows from Operating ActivitiesNet Cash Provided by Investing ActivitiesNet Cash Provided by Financing ActivitiesCash Flows from Financing Activities				$

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Part 2

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