Question 2 (20%)

Lornas Bubble Tea Group provided the 2021 and 2020 comparative Balance sheets and 2021 Income Statement as follow:

Lornas Bubble Tea Group Comparative Balance Sheets
	December 31		Increase
	2021	2020	(Decrease)
Current assets:
Cash and cash equivalents	$ 17,300	4,000	13,300
Accounts receivable	45,700	44,500	1,200
Inventories	61,400	47,000	14,400
Prepaid expenses	1,800	3,900	(2,100)
Non-current assets:
Land	69,100	22,600	46,500
Equipment, net	53,100	49,500	3,600
Total assets	248,400	171,500	$ 76,900
Current liabilities:
Accounts payable	35,200	$ 26,900	$ 8,300
Salary payable	24,000	13,100	10,900
Other accrued liabilities	22,100	23,700	(1,600)
Long-term liabilities:
Notes payable	51,000	34,000	17,000
Shareholders equity:
Share capital, no-par	88,600	65,900	22,700
Retained earnings	27,500	7,900	19,600
Total liabilities and shareholders equity	248,400	$ 171,500	$ 76,900

Lornas Bubble Tea Group Income Statement	Year Ended December 31, 2021
Sales revenue	$450,000
Less Cost of goods sold	186,900
Gross Profit		263,100
Expenses:
Salary expense	76,300
Depreciation expense	17,900
Other operating expense	49,900
Interest expense	24,200
Income tax expense	29,200
Total expenses		197,500
Net income		$65,600

Lornas Bubble Tea had no noncash investing and financing transactions during 2021. During the year, there were no sales of land or equipment, no payment of notes payable, no retirements of shares, and no treasury shares transactions.

Requirements:

Prepare the 2021 statement of cash flows, formatting operating activities by using the direct method.

Question 3 (20%)

Refer the Lornas Bubble Tea Group data from Question 2:

1. Prepare the 2021 statement of cash flows from operating activities: by using the indirect method.
2. Evaluate Lornas Bubble Teas cash flows for the year, including its free cash flow and cash realization ratio. Review all three categories of cash flows and give the reason for your evaluation.