Question

For the year ended September 30, 2019 Instruction: Answer All Questions Question 1 20 marks Sales Less: Cost of goods sold Gross Profit - 5,000,000 3.500.000 1.500.000 Below are the unclassified financial statements for Jazzec Ltd for the year ended September 30, 2019: Jazzec Ltd Statement of Financial Position As at September 30, 2019 2016 Less Expenses: Salaries & Employee Benefits Depreciation Expense Interest Expense Insurance Income Tax Expense Net Profit 600,000 200,000 150,000 100,000 250.000 1.300.000 200.000 Accounts Receivable (Net] Inventory 200.000 50.000 300,000 375,000 B25,000 300,000 20.000 25,000 2.500,000 2.000.000 1700,000) 500.000 Additional Information: - No equipment was sold during the year - No dividends were declared and paid during the year Prepaid Insurance Expenses Equipment Accumulated Depreciation Required: a) Prepare the operating activities section of the statement of cash flows using the direct method (15 marks) 2145.000 2.750.000 b) Calculate the company's current debt coverage ratio and free cash flow. Comment on the company's cash flow liquidity 15 marks) Accounts Payable Salaries & Wages Payable Income Tax Payable Accrued Interest Payable Bonds Payable due July 31, 2022 Common Shares Retained earnings Total liabilities and shareholder's equity 500,000 300.000 120,000 17,000 400,000 1,378,000 430,000 450,000 315,000 115,000 20,000 450,000 1.140,000 230,000 3,145,000 2.750,000

Answer 1

Answer with working note give below

Cash Flow Statement under Direct method a) Plant and Equipment Account Cash flows from Operating Activities Amount opening balance $2.000,000 Acash received from customers Bcash peid to suppliers C $5,075,000 ($3,505,000) ($710,000) ($245,000) To bank $500,000 new purchase) cash paid for operating expenses cash paid for income taxes clasing balance $2,500,000 $2,500.000 $2,500,000 ECash paid for Interest ($153,000) $462,000 Accumulated Depreciation Net Cash provided by Operating Activities $500,000 opening balance closing balance S700,000 P & L $200,000 $700,000 $700.000 Working notes cash received from customers Sales A $5,000,000 Add: Decrease in Accounts receivable $75,000 Net cash recelved from customers $5.075.000 cash paid to suppliers $3,500,000 $25,000 COGS Add: Increase in inventory $3,525,000 cost of purchase cost of purchase Less: Increase in payable Net payment to suppliers $3,525,000 $20,000 $3,505,000 cash paid for operating expenses $00,000 Salaries and Employee Benefits $100,000 $15,000 -$5,000 Insurance Add: decrease in Salaries payable Less: Decrease in prepaid Insurance cash payments for operating expenses $710,000 cash paid for income taxes D $250,000 Income tax eхрепse Less: Increase in taxes payable cash paid for income taxes $5,000 $245,000 cash paid for interest Interest Less: Decrease in interest payable $150,000 $3,000 cash paid for interest $153,000 b) Current Debt coverage ratio EBITDA 800,000 4 Total Obligation 200,000 Debt Coverage ratio is gaad for principal and interest payment EBITDA Net profit Adds 200,00C Depreciation Interest expense 200,000 150,000 250,000 800,000 Income tax expense |ЕBITDA Debt repaid Interest 50,000 150,000 Total Obligation 200,000 Free Cash Flow Cash flow from Operating Activities Les: Capital expenditure Fixed Assets Free Cash Flow $462,000 ($500,000) $38,000 Free Cash flow is negative. It means cash flow from operations are not enough to purchase Fixed Assets