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.

Cash flow statement
Cash flow from operating activities
Receipts
Collections from customers	237500
Dividend received on investment in shares	11500
Total cash receipts		249000
Payments
To suppliers	108300
To employees	40000
For interest	2500
For income tax	10500
Total cash payments		161300
Net cash from operating activities		87700
Cash flows from investing activities
Acquisition of non current assets	-122000
Proceeds from sale of non current assets	24000
Net cash used in investing activities		-98000
Cash flows from financing activities
Proceeds from issue of ordinary shares	39000
Payment of long term debt	-20000
Dividends declared and paid	-7000
Net cash from financing activities		12000
Net increase in cash		1700
Cash balance, 30 June 2017		32000
Cash balance , 30 June 2018		33700

2.

The cash flow from operating activities is positive since the collections from customers have exceeded the sales. However, the excess generated by operating activities has been used in investing activities which has resulted in a very small increase in overall cash. The company had a opening cash balance of 32000 and the net increase is $1700 which does not show a good cash liquidity position of the firm.