Quiz $3$ has Two parts$-$Statement of Cash Flows and Contribution Margin

Part $1$ Statement of Cash Flows

Guy and Susan Johnson owns Johnsons Jewelry Products $($JJP$)$ stores in Florence, South Carolina. He believes that the stores have been successful and he wants to open a new store in Sumter about $30$ miles west of Florence. Guy has been in the retail line for over $30$ years, and he worked at his uncle$$s hobby shop while in high school and college before starting his own store at the age of $25.$ Susan used to be a legal assistant at a local law office before quitting to help her husband run the jewelry store.

Two big secrets to a successful jewelry store operation are good location and product selection. Guy$$s first store is located in downtown Florence. Since he had been born and raised in Florence, he attracted a good customer base that remained loyal to his store after some of the giant chain related jewelry stores began to move into the area. About $10$ years ago, Guy saw the change in customer shopping habits and purchased a second store near an interchange to Interstate $95$ in a rapidly growing retail area. Lots of new families had moved into the area, and Guy could not totally rely on the $$good old boy$$ market alone to sustain his market share. This second store catered to the younger more mobile generation that shopped at or near malls.

Guy now was looking into other markets. Sumter was not located on the interstate, but the area was growing because of its proximity to the state capital of Columbia, which was just $30$ miles to its west. Guy believed that the people of Sumter who commuted to work in Columbia would prefer to limit their driving for shopping activities to the immediate Sumter area. Also, since Guy was a respected citizen of Florence, his reputation as an honest businessman had spread to Sumter. He believed he could quickly build up a new customer base in that location. The big chain type stores also did not seem as interested in the Sumter area, preferring instead to locate in the larger metropolitan areas of Columbia and Florence. The appropriate jewelry items to feature in his stores were very important. Guy felt that his area of influence was strictly regional, and he did not have to carry much of the standard inventory of the national chain type of jewelry stores. His jewelry was more a reflection of local interest; thus a lot of his wedding ring sets and related items were hot sellers.

Guy went to the Florence National Bank to inquire about funding for the new store location. He had found an abandoned furniture store in downtown Sumter along Main Street that was up for sale for $$350,000.$ The store seemed to be the right size and at a good location. A grocery store was in the same block with ample off street parking. He brought his balance sheet for the last two years and an income statement for the last operating year to the bank to support his request for a retail loan of $$350,000.($Copies of the financial statements are listed at the end of the quiz$).$

Michael Miser, the local bank loan vice president had been a friend of Guy$$s for many years. He was a customer at Guy$$s jewelry store and purchased his wedding ring set from Guy$$s store, and his bank had underwritten the funding for the second store. Michael was excited about Guy$$s expansion goals and the prospect of another business loan with his friend. At the same time, Michael had to live up to his reputation and because of interest rates being what they are, he had to be very critical of any loan coming across his desk. He was not about to approve a loan unless he was almost $100$ percent sure that the borrower would not default. Guy$$s past success had alleviated much of Michael$$s concern, but he still wanted to complete a detailed analysis of the financial performance of JJP during the last calendar year. Upon reviewing the balance sheet, Michael knew with the covid pandemic recently, foot traffic was reduced at many retail stores, but JJP showed a strong profitable performance. The current financial statements did not seem to give enough information to answer Michael$$s questions and he asked Guy to prepare a statement of cash flows for the year ending December $31,20$xx$.$ Guy has come to you for some help with this loan.

Additional transaction data

A$.$ The accounts payable balances result from inventory purchases.

B$.$ Purchased $$60,000$ in plant assets by issuing $$60,000$ of notes payable.

C$.$ Sold plant assets with a book value of $$8,000($original costs of $$20,000$ and accumulated depreciation of $$12,000)$ for $$2,000$ cash, yielding a $$6,000$ loss.

D$.$ Received $$15,000$ cash from issuing $3,000$ shares of common stock.

E$.$ Paid $$18,000$ cash to retire notes with a $$34,000$ book value, yielding a $$16,000$ gain.

F$.$ Declared and paid cash dividends of $$14,000$

Required:

$1.$ Develop a Statement of Cash Flows for JJP for the $2$nd year ending December $31,20$xx$.$

$2.$ Analyze the financial performance of JJP based on AL