Jeopardy Inc.s CFO has just left the office of the company president after a meeting about the

Question:

Jeopardy Inc.€™s CFO has just left the office of the company president after a meeting about the draft balance sheet at April 30, 2011, and income statement for the year ended. (Both are reproduced below.) €œOur liquidity position looks healthy,€ the president had remarked. €œLook at the current and acid-test ratios, and the amount of working capital we have. And between the goodwill writeoff and depreciation, we have almost $23 million of non-cash expenses. I don€™t understand why you€™ve been complaining about our cash situation.€
The CFO turns the draft over to you, the newest member of the accounting staff, along with extracts from the notes to the

Consolidated Statement of Income and Retained Earnings
Year Ended April 30, 2011, and 2010
(in $000s)

*The operating and general and administrative expenses for 2011 include salaries and wages of $37,509 and $9,115, respectively.
Draft Notes to the Financial Statements
For the Year Ended April 30, 2011
Note 1. Investments
The company€™s investments at April 30 are as follows (in $000s):

Jeopardy Inc.€™s CFO has just left the office of the

Note 2. Property, Plant, and Equipment
Additions to property, plant, and equipment for the current year amounted to $2,290,000. Proceeds from the disposal of property, plant, and equipment amounted to $250,000.
Note 3. Franchise Fees Franchise fees are amortized over the term of 10 years using the straight-line method.
Note 4. Accounts Payable and Accrued (in $000s)

Note 5. Long-Term Debt (in $000s)

Debentures bear interest at 12% per annum and are due in 2011. Bank term loans bear interest at 8% and the bank advanced $2.2 million during the year.
Note 6. Share Capital On September 14, 2010, Jeopardy Inc. issued 3.8 million shares with special warrants. Net proceeds from issuing 3.8 million shares amounted to $14,393,000. Net proceeds from issuing 3.8 million warrants amounted to $899,000. On April 30, 2011, a stock dividend of $1 million was issued.
Instructions
Based on the assumption that Jeopardy Inc. follows ASPE:
(a) Prepare a statement of cash flows for the year ended April 30, 2011, on a non-comparative basis from the information provided. The CFO wants to use the direct method to report the company€™s operating cash flows this year. Include all required disclosures.
(b) Prepare a reconciliation of the 2011 net loss to cash provided from (used in) operations. This reconciliation is to be included in a note to the financial statements.
(c) Write a memo to the president of Jeopardy Inc. that explains why the company is experiencing a cash crunch when its liquidity ratios look acceptable and it has significant non-cash expenses.
(CICA adapted)

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...

Transcribed Image Text:

JEOPARDY INC Consolidated Balance Sheet April 30, 2011, and 2010 (in $000s) 2011 2010 Assets Cash and 60-day treasury bills Accounts receivable Inventories Income taxes recoverable Prepaid expenses $3,265 23,744 26,083 145 1,402 54,639 5,960 37,332 4,875 4,391 3,739 18,399 21,561 -0 1,613 45,312 6,962 45,700 2,245 1,911 12,737 Investments (Note 1) Property, plant, and equipment (Note 2) Future income tax asset Franchise fees (Note 3) Goodwill $107,197 $114,867 Liabilities Current 事 6,844 3,243 1,800 11,887 14,900 $ 6,280 4,712 1,200 12,192 14,500 Bank overdraft (temporary) Accounts payable and accrued (Note 4) Current portion of long-term debt Long-term debt (Note 5) Shareholders' Equity Share capital (Note 6) Retained earnings 79,257 1,153 80,410 $107,197 62,965 25,210 88,175 $114,867 2011 2010 Revenue Operating Interest and other $89,821 1,310 91,131 $68,820 446 69,266 Expenses Operating* General and administrative Depreciation and amortization Goodwill writeoff Interest Loss on sale of capital assets 76,766 13,039 10,220 12,737 1,289 62,455 12,482 11,709 1,521 394 Loss before equity loss and income taxes Equity income (loss) (Note 1) Loss before income taxes Income taxes Net loss Retained earnings, beginning of year 114,445 (23,314) (2,518) (25,832) 2,775 (23,057) 25,210 2,153 (1,000) 88,167 (18,901) 100 (18,801) 5,161 (13,640) 38,850 25,210 Stock dividend Retained earnings, end of year 1,153 $25,210 2011201 Compuco Ltd. (fair value 2011, $4.3 million) Shares, opening balance at equity Equity income (loss) Shares, ending balance at equity $6,962 (2,518) 4,444 1,516 $5,960 $5,862 100 5,962 1,000 $6,962 Other investments, at amortized cost 2011 2010 $3,102 141 $4,562 Accounts payable suppliers Accrued salaries and wages payable 150 $3,243 $4,712 2011 $12,500 2010 $12,500 Debentures Bank term loans, due April 30, 2012, principal repayable at $150,000 a month (2010, at $100,000 a month) 4.200 16,700 (1,800) $14,900 3,200 15,700 (1,200) $14,500 Current maturities

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Jeopardy Inc.s CFO has just left the office of the company president after a meeting about the

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a Jeopardy Inc Consolidated Statement of Cash Flows For the Year Ended April 30 2011 000 omitted Cash flows from operating activities Cash received from customers 1 84476 Cash received for interest 13...View the full answer

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