Please, I need a correct answer and clear explanation. open image and zoom for a
ID: 2607142 • Letter: P
Question
Please, I need a correct answer and clear explanation. open image and zoom for a clear view. Thanks,
Using the West Jet Financial statements, answer the following questions R1 2-4 p.106-109)
b. Why do you think West Jet does not report a cost of goods sold
c. Explain what “Advanced ticket sales” in the current liabilities section represents
e. How much did West Jet use in 2013 to acquire new aircraft? Which statement did you find this information on?
RI2-4
(Determination of items from a Canadian company's financial statements)
Calgary-based WestJet Airlines Ltd. provides services throughout Canada and to some international destinations. Excerpts from its 2013 financial statements are in Exhibits 2-19A to 2-19C.
Exhibit 2-19A WESTJET AIRLINES LTD.'S 2013 CONSOLIDATED STATEMENT OF EARNINGS
Consolidated Statement of Earnings
For the years ended December 31
(Stated in thousands of Canadian dollars, except per share amounts)
Note
2013
2012
Revenue:
Guest
3,337,569
3,133,492
Other
324,628
293,917
3,662,197
3,427,409
Operating expenses:
Aircraft fuel
1,039,448
992,787
Airport operations
459,465
424,911
Flight operations and navigational charges
410,052
376,050
Sales and distribution
356,988
333,106
Marketing, general and administration
222,567
202,398
Depreciation and amortization
200,840
185,401
Inflight
176,907
162,633
Aircraft leasing
175,646
173,412
Maintenance
169,197
154,406
Employee profit share
51,577
46,585
3,262,687
3,051,689
Earnings from operations
399,510
375,720
Non-operating income (expense):
Finance income
15
17,848
18,391
Finance cost
15
(43,447)
(48,900)
Gain on foreign exchange
1,136
1,061
Gain (loss) on disposal of property and equipment
(2,962)
469
Loss on fuel derivatives
—
(6,512)
(27,425)
(35,491)
Earnings before income tax
372,085
340,229
Income tax expense (recovery):
Current
154,964
66,230
Deferred
(51,601)
31,607
11
103,363
97,837
Net earnings
268,722
242,392
Exhibit 2-19B WESTJET AIRLINES LTD.'S 2013 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Consolidated Statement of Financial Position
At December 31
(Stated in thousands of Canadian dollars)
Note
2013
2012
Assets
Current assets:
Cash and cash equivalents
5
1,256,005
1,408,199
Restricted cash
6
58,106
51,623
Accounts receivable
19
42,164
37,576
Prepaid expenses, deposits and other
19
133,263
101,802
Inventory
19
36,722
35,595
1,526,260
1,634,795
Non-current assets:
Property and equipment
7
2,487,734
1,985,599
Intangible assets
8
58,691
50,808
Other assets
19
70,778
75,413
Total assets
4,143,463
3,746,615
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities
19
543,167
460,003
Advance ticket sales
19
551,022
480,947
Non-refundable guest credits
19
46,975
47,859
Current portion of maintenance provisions
9
76,105
34,135
Current portion of long-term debt
10
189,191
164,909
1,406,460
1,187,853
Non-current liabilities:
Maintenance provisions
9
142,411
145,656
Long-term debt
10
689,204
574,139
Other liabilities
19
8,834
9,914
Deferred income tax
11
306,714
356,748
Total liabilities
2,553,623
2,274,310
Shareholders' equity
Share capital
12
603,861
614,899
Equity reserves
69,079
69,856
Hedge reserves
105
(5,746)
Retained earnings
916,795
793,296
Total shareholders' equity
1,589,840
1,472,305
Total liabilities and shareholders' equity
4,143,463
3,746,615
Exhibit 2-19C WESTJET AIRLINES LTD.'S 2013 CONSOLIDATED STATEMENT OF CASH FLOWS
Consolidated Statement of Cash Flows
For the years ended December 31
(Stated in thousands of Canadian dollars)
Note
2013
2012
Operating activities:
Net earnings
268,722
242,392
Items not involving cash:
Depreciation and amortization
200,840
185,401
Change in maintenance provisions
26,610
31,378
Change in other liabilities
1,782
(383)
Amortization of hedge settlements
1,400
1,400
Loss on fuel derivatives
—
6,512
(Gain) loss on disposal of property and equipment
2,962
(469)
Share-based payment expense
12
14,533
12,815
Deferred income tax expense (recovery)
(51,601)
31,607
Unrealized foreign exchange gain
(12,020)
(1,487)
Change in non-cash working capital
298,697
208,110
Change in restricted cash
(6,484)
(3,282)
Change in other assets
(1,374)
(6,894)
Cash interest received
19,079
17,780
Cash taxes paid
(147,868)
(950)
Purchase of shares pursuant to compensation plans
(7,131)
(1,306)
608,147
722,624
Investing activities:
Aircraft additions
(639,592)
(218,116)
Other property and equipment and intangible additions
(75,580)
(51,191)
(715,172)
(269,307)
Financing activities:
Increase in long-term debt
318,075
72,995
Repayment of long-term debt
(178,647)
(162,678)
Decrease in obligations under finance leases
—
(75)
Shares repurchased
12
(112,362)
(112,065)
Dividends paid
13
(52,188)
(37,549)
Issuance of shares pursuant to compensation plans
106
198
Cash interest paid
(36,677)
(43,055)
Change in non-cash working capital
146
(6,815)
(61,547)
(289,044)
Cash flow from operating, investing and financing activities
(168,572)
164,273
Effect of foreign exchange on cash and cash equivalents
16,378
321
Net change in cash and cash equivalents
(152,194)
164,594
Cash and cash equivalents, beginning of year
1,408,199
1,243,605
Cash and cash equivalents, end of year
5
1,256,005
1,408,199
Required:
a.
Assuming that all the sales were on account, determine the amount of cash that was collected from customers in 2013.
b.
Why do you think WestJet does not report a Cost of Goods Sold account on its statement of income?
c.
Explain what the item advance ticket sales in the current liabilities section of the statement of financial position represents. What type of transaction gave rise to this liability? What will cause this liability to decrease?
d.
How much money did WestJet use in 2013 to repurchase shares? Assuming the shares were all repurchased using cash, what was the effect on the accounting equation of the share repurchase?
e.
How much did WestJet spend on acquiring new aircraft in 2013? If it financed the acquisitions with long-term debt, what was the effect on the accounting equation?
Consolidated Statement of Earnings
For the years ended December 31
(Stated in thousands of Canadian dollars, except per share amounts)
Note
2013
2012
Revenue:
Guest
3,337,569
3,133,492
Other
324,628
293,917
3,662,197
3,427,409
Operating expenses:
Aircraft fuel
1,039,448
992,787
Airport operations
459,465
424,911
Flight operations and navigational charges
410,052
376,050
Sales and distribution
356,988
333,106
Marketing, general and administration
222,567
202,398
Depreciation and amortization
200,840
185,401
Inflight
176,907
162,633
Aircraft leasing
175,646
173,412
Maintenance
169,197
154,406
Employee profit share
51,577
46,585
3,262,687
3,051,689
Earnings from operations
399,510
375,720
Non-operating income (expense):
Finance income
15
17,848
18,391
Finance cost
15
(43,447)
(48,900)
Gain on foreign exchange
1,136
1,061
Gain (loss) on disposal of property and equipment
(2,962)
469
Loss on fuel derivatives
—
(6,512)
(27,425)
(35,491)
Earnings before income tax
372,085
340,229
Income tax expense (recovery):
Current
154,964
66,230
Deferred
(51,601)
31,607
11
103,363
97,837
Net earnings
268,722
242,392
Explanation / Answer
a.
b. cost of goods sold is not applicable as the company is not making any sale of goods, hence the term cost of goods sold is not relevant in the case.
c. When customers book tickets and the journey is not complete on the reporting date, it is a liabilitiy till the customer journey is complete.
when cash is received for a service to be performed in a future date, the cash received is a liability.
once provision of service is complete, liability is removed revenue is recognised.
d. 112,362
cash decrease, shareholders equity decrease
e. aircraft added using cash= 639,592
effect on accounting equation: aircraft asset increase, long term liability increase
Accounts receivable Opening balance 37576 Add credit sales 36,62,197 Less closing balance 42,164 Cash collected 36,57,609