Question

Please, I need correct answers and clear explanation of the following b,c and e questions. Thanks,...

Please, I need correct answers and clear explanation of the following b,c and e questions. 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?

________________________________________________________________________________________________________________________________________

Please follow these information:

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

Homework Answers

Answer #1

Solution:

b) West Jet Airline Ltd providing aircraft services to passangers and charge guest fee from passangers travelling in aircraft. They are not selling any goods, only operational cost like fuel , airport operations etc are incurred for providing services to customers. As there is no goods involved in this business that is the reason West Jet does not report a Cost of Goods Sold.

c) Advance ticket sales in current liabilites represents unearned revenue of West Jet. These advance ticket sales represents cash received against sale of future bookings for which services will be provided to customer in upcoming financial year.

e) West jet used $639,592 in acquiring aircraft in 2013. This information is available in cash flow statment under "Cash flow from investing activities" in item "Aircraft Addition".

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