Question
The 2020 and 2019 comparative Balance Sheets and 2020 Income Statement of Lorna Jewelry Corp. follow: Lorna Jewelry Corp. Comparative Balance Sheets December 31 Increase
- The 2020 and 2019 comparative Balance Sheets and 2020 Income Statement of Lorna Jewelry Corp. follow:
Lorna Jewelry Corp. Comparative Balance Sheets | |||
December 31 | Increase | ||
2020 | 2019 | (Decrease) | |
Current assets: | |||
Cash and cash equivalents | $17,600 | $5,000 | $12,600 |
Accounts receivable | 45,500 | 44,500 | 1,000 |
Inventories | 79,100 | 67,500 | 11,600 |
Prepaid expenses | 2,100 | 6,000 | (3,900) |
PPE: | |||
Land | 69,100 | 21,900 | 47,200 |
Equipment, net | 53,100 | 49,200 | 3,900 |
Total assets | $266,500 | $194,100 | $72,400 |
Current liabilities: | |||
Accounts payable | $35,800 | $25,600 | $10,200 |
Salary payable | 22,000 | 15,600 | 6,400 |
Other accrued liabilities | 22,900 | 24,200 | (1,300) |
Long-term liabilities: | |||
Notes payable | 50,000 | 37,000 | 13,000 |
Shareholders equity: | |||
Share capital, no-par | 88,600 | 64,300 | 24,300 |
Retained earnings | 47,200 | 27,400 | 19,800 |
Total liabilities and shareholders equity | $266,500 | $194,100 | $72,400 |
Lorna Jewelry Corp. Income Statement | Year Ended December 31, 2020 | |
Revenues: | ||
Sales revenue | $448,000 | |
Expenses: | ||
Cost of goods sold | $185,300 | |
Salary expense | 76,800 | |
Depreciation expense | 17,500 | |
Other operating expense | 49,700 | |
Interest expense | 24,900 | |
Income tax expense | 29,800 | |
Total expenses | 384,000 | |
Net income | $64,000 |
Lorna Jewelry had no noncash investing and financing transactions during 2020. During the year, there were no sales of land or equipment, no payment of notes payable, no retirements of shares, and no treasury share transactions.
Requirements:
1. Prepare the 2020 statement of cash flows, formatting operating activities by using the indirect method.
2. Prepare the 2020 statement of cash flows by using the direct method.
3. Evaluate Lorna Jewelrys 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.
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