E11-36B. (Learning Objectives 4, 5, 6, 7: Preparing and analyzing the statement of cash flows—direct method) The Income Statement and additional data of Happy Life, Inc., follow:

Additional data:

a. Collections from customers are €17,500 more than sales.

b. Payments to suppliers are €1,100 more than the sum of cost of goods sold plus advertising expense.

c. Payments to employees are €1,800 less than salary expense.

d. Dividend income, interest expense, and income tax expense equal their cash amounts.

e. Acquisition of PPE is €158,000. Of this amount, €110,000 is paid in cash and €48,000 by signing a note payable.

f. Proceeds from sale of land total €24,000.

g. Proceeds from issuance of shares total €88,000.

h. Payment of long-term note payable is €14,000.

i. Payment of dividends is €8,000.

j. Cash balance, November 30, 20X5, was €22,000.

Requirements 1. Prepare Happy Life, Inc.’s statement of cash flows and accompanying schedule of noncash investing and financing activities. Report operating activities by the direct method.

2. Evaluate Happy Life’s cash flows for the year, including its free cash flow and cash realization ratio. In your evaluation, review all three categories of cash flows and give the reason for your evaluation.

________________________________________