Jeopardy Inc.'s CFO has just left the office of the company president after a meeting about the draft statement of financial position at April 30, 2014, and income statement for the year ended. (Both are reproduced below.) "Our liquidity position looks healthy," the president had remarked. "Look 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 financial statements over to you, the newest member of the accounting staff, along with extracts from the notes to the financial statements.

Consolidated Statement of Income and Retained Earnings
Year Ended April 30, 2014, and 2013
(in $000s)

Draft Notes to the Financial Statements
For the Year Ended April 30, 2014
Note 1. Investments
The company's investments at April 30 are as follows (in $000s):

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. Intangible Assets-Franchises
Franchise fees are amortized over the term of 10 years using the straight-line method.
Note 4. Accounts Payable and Accrued Liabilities (in $000s)

                                                                        2014 .................... 2013
Accounts payable-suppliers....................$3,102....................$4,562
Salaries and wages payable..........................141.......................150
                                                                        $3,243...................$4,712
Note 5. Long-Term Debt (in $000s)

Debentures bear interest at 9% per annum and are due in 2016. Bank term loans bear interest at 8% and the bank advanced $2.2 million during the year.
Note 6. Share Capital
On September 14, 2013, 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, 2014, 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, 2014, 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 2014 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)

Transcribed Image Text:

JEOPARDY INC Consolidated Statement of Financial Position April 30, 2014, and 2013 (in $000s) 2014 2013 Assets Cash and 60-day treasury bills Accounts receivable Inventory $3,265 $ 3,739 23,744 26,083 18,399 21,561 2014 2013 145 1,402 54,639 5,960 37,332 4,875 4,391 Income tax receivable Prepaid expenses Investments (Note 1) Property, plant, and equipment (Note 2) Deferred tax asset Intangible assets -franchises (Note 3) Goodwill 1,613 45,312 6,962 45,700 2,245 1,911 12,737 $114,867 $107,197 Liabilities Current $ 6,844 3,243 1,800 11,887 $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) 14,900 Shareholders' Equity Share capital (Note 6) Retained earnings 79,257 1,153 80,410 $107,197 62,965 25,210 88,175 $114,867 2014 2013 Revenue Sales revenue Interest and other $89,821 1,310 91,131 $68,820 446 69,266 Operating General and administrative Depreciation and amortization Loss on impairment (goodwill) Interest Loss 76,766 13,039 10,220 12,737 1,289 394 114,445 (23,314) (2,518) (25,832) 2,775 (23,057) 25,210 2,153 (1,000) $1,153 62,455 12,482 11,709 1,521 on sale of capital assets Loss before equity loss and income tax Investment Income or Loss (Note 1) Loss before income tax Income tax Net loss Retained earnings, beginning of year 88,167 (18,901) 100 (18,801) 5,161 (13,640) 38,850 25,210 Stock dividend Retained earnings, end of year $25,210 The operating and general and administrative expenses for 2014 include salaries and wages of $46,624. 2014 2013 Compuco Ltd. (fair value 2014, $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 2014 2013 $4,562 Accounts payable-suppliers Salaries and wages payable $3,102 141 150 1E4) $3,243 $4,712 2014 2013 $12,500 $12,500 Debentures Bank term loans, due April 30, 2015, principal repayable at $150,000 a month (2013, at $100,000 a month) 4,200 16,700 (1,800) $14,900 3,200 15,700 (1,200) Current maturities $14,500