(Preparing a cash flow statement, using the direct method to calculate cash from operations LO 4) Examine Jubilee Ltd.s (Jubilee) balance sheets and income statement below:

Additional Information:
i. During fiscal 2005 $125,000 of Jubilee’s sales were for cash and the remainder were on credit.
ii. All of Jubilee’s inventory purchases were on credit.
iii. During 2005 Jubilee sold for $20,000 capital assets that cost $100,000 and had a net book value of $45,000. (Remember that when amortizable capital assets are sold, the cost of the asset and the accumulated amortization associated with the asset must be removed from the books. In this situation, the Capital Assets account would be reduced by $100,000 and the Accumulated Amortization account would be reduced by $55,000.)
iv. Advertising and Marketing, General and Administrative, and Other Expenses were fully paid in cash during 2005.
v. The amounts Due From Shareholders are loans made to shareholders by Jubilee. These loans are not considered operating items.
Required:

a. Use the information provided to prepare a cash flow statement for Jubilee for the year ended July 31, 2005. Use the direct method for calculating cash from operations.

b. Assume the role of an analyst for a mutual fund company who is evaluating Jubilee’s situation. Analyze and interpret the cash flow statement you prepared and prepare a report to your manager describing what you learned about Jubilee from the statement.

Jubilee Ltd. Balance Sheets for the Years Ended July 31, 2004 and 2005 2005 2004 2005 2004 Assets Liabilities and shareholders' equity Current assets Current liabilities Cash $ 10,000 $ 27,000 Accounts payable $27,000 $ 48,000 Accounts receivable Inventory 50,000 35,000 Wages and salaries payable 20,000 27,000 79,000 62,000 Interest payable 5,000 3,200 Due from shareholders 40,000 25,000 Taxes payable 5,000 9,000 Total current assets 179,000 149,000 Total current liabilities 57,000 87,200 Capital assets Accumulated amortization Total assets 250,000 285,000 (160,000) (148,000) $269,000 $286,000 Capital stock Retained earnings Total liabilities and shareholders' equity Bank loan 40,000 55,000 60,000 50,000 112,000 93,800 $269,000 $286,000