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Jazzec Ltd
Statement of Financial position
As at September 30,
| | 2019 | 2018 |
| Cash | 200,000 | 50,000 |
| Accounts Receivable (net) | 300,000 | 375,000 |
| Inventory | 825,000 | 800,000 |
| Prepaid Insurance Expenses | 20,000 | 25,000 |
| Equipment | 2,500,000 | 2,000,000 |
| Accumulated Depreciation | (700,000) | (500,000) |
| | 3,145,000 | 2,750,000 |
| | 2019 | 2018 |
| Accounts payable | 500,000 | 480,000 |
| Salaries & wages payable | 300,000 | 315,000 |
| Income tax payable | 120,000 | 115,000 |
| Accrued Interest payable | 17,000 | 20,000 |
| Bonds payable due July 31, 2022 | 400,000 | 450,000 |
| Common shares | 1,378,000 | 1,140,000 |
| Retained earnings | 430,000 | 230,000 |
| Total liabilities and shareholders equity | 3,145,000 | 2,750,000 |
Jazzec Ltd
Income Statement
For the year ended September 30, 2019
| | $ | $ |
| Sales | | 5,000,000 |
| Less: Cost of goods sold | | 3,500,000 |
| Gross profit | | 1,500,000 |
| Less Expenses: | | |
| Salaries and employee benefits | 600,000 | |
| Depreciation expense | 200,000 | |
| Interest expense | 150,000 | |
| Insurance | 100,000 | |
| Income tax expense | 250,000 | 1,300,000 |
| Net profit | | 200,000 |
Additional information:
- No equipment was sold during the year
- No dividends were declared and paid during the year
Required:
- Prepare the operating activities section of the statement of cash flows using the direct method
- Calculate the companys current debt coverage ratio and free cash flow. Comment on the companys cash flow liquidity.
Answer & Explanation
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