Question

LO4 E11-35B. (Learning Objective 4: Prepare the statement of cash flows-direct method) The income statement and additional data of Jubilee World, Inc., follow: $ 222,000 11,500 $ 233,500 Jubilee World, Inc. Income Statement Year Ended June 30, 2018 Revenues: Sales revenue 4 Dividend revenue 5 Expenses: Cost of goods sold Salary expense Depreciation expense Advertising expense 10 Interest expense 11 Income tax expense 12 Net income 102,000 42.000 28,000 8.000 2.500 10.500 193,000 $40.500 Additional data: a. Collections from customers are $15,500 more than sales. b. Payments to suppliers are $1,700 less than the sum of cost of goods sold plus advertis- ing expense. c. Payments to employees are $2,200 less than salary expense. d. Dividend revenue, interest expense, and income tax expense equal their cash amounts. e. Acquisition of plant assets is $176,000. Of this amount, $ 122,000 is paid in cash and $54,000 is financed by signing a long-term note payable. f. Proceeds from the sale of land totaled $24,000. g. Proceeds from the issuance of common stock totaled $39,000 h. Payment of a long-term note payable is $20,000. i. Payment of dividends is $7.000. j. Cash balance, June 30, 2017, was $32,000. Requirements 1. Prepare Jubilee World's statement of cash flows and accompanying schedule of noncash investing and financing activities. Report operating activities using the direct method. 2. Evaluate the company's cash flows for the year. In your evaluation, mention all three categories of cash flows and give the rationale for your evaluation.

Answer 1

1.

Jubilee World, Inc.
Statement of Cash Flows
For the Year Ended June 30, 2018
Cash Flows from Operating Activities
Cash receipts from customers (222000 + 15500)	237500
Cash received from dividend revenue	11500
Cash paid to suppliers (102000 + 8000 - 1700)	-108300
Cash paid to employees for salaries (42000 - 2200)	-39800
Cash paid for interest	-2500
Cash paid for income taxes	-10500
Net cash provided by operating activities		87900
Cash Flows from Investing Activities
Purchase of plant assets	-122000
Sale proceeds from land	24000
Net cash used by investing activities		-98000
Cash Flows from Financing Activities
Issuance of Common stock	39000
Payment of long-term note payable	-20000
Payment of dividends	-7000
Net cash provided by financing activities		12000
Net increase in cash		1900
Cash balance, June 30, 2017		32000
Cash balance, June 30, 2018		33900

2. It is seen from the statement of cash flows for Jubilee World that there is a net cash inflow from operating, and financing activities however, there is a net cash outflow from investing activities. The net inflow from financing is on account of issuance of common stock while the net ouflow from investing activities is due to the acquisition of plant assets net of the sale proceeds from land. The company has also financed some plant assets by issuing long-term notes payable. The cash inflow from operating activities is used mainly for financing the acquisition of plant assets due to which there is only a marginal increase in cash during the year.