Question

Jina begins to make longer term plans and negotiates a deal with a farmer who owns a ‘pick-your-own’ fruit business. The farmer will supply Jina with 4 weeks’ worth of strawberries at a time, which will be frozen, and Jina will get 2 weeks’ credit. The supermarket also wants to trade on credit and expects 4 weeks’ credit from Jina. Taking into account this information, Jina now needs you to prepare a statement of financial position, statement of cash flows and income statement after a further 6 weeks’ production (2,400 jars).

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Answer to a math question Jina begins to make longer term plans and negotiates a deal with a farmer who owns a ‘pick-your-own’ fruit business. The farmer will supply Jina with 4 weeks’ worth of strawberries at a time, which will be frozen, and Jina will get 2 weeks’ credit. The supermarket also wants to trade on credit and expects 4 weeks’ credit from Jina. Taking into account this information, Jina now needs you to prepare a statement of financial position, statement of cash flows and income statement after a further 6 weeks’ production (2,400 jars).

Expert avatar
Sigrid
4.5
116 Answers
To prepare the financial statements, we need to calculate the inventory, accounts payable, accounts receivable, and cash flows for the given scenario.

Step 1: Inventory Calculation
Jina is buying strawberries from the farmer 4 weeks at a time. Since she needs 6 weeks' production, she will have two batches of inventory: one batch for the first 4 weeks and another batch for the remaining 2 weeks.
Let's calculate the inventory for each batch:

Inventory for the first 4 weeks:
Given that Jina produces 2,400 jars in 6 weeks and gets 4 weeks' worth of strawberries at a time, we can calculate the inventory for the first 4 weeks as:
\text{Inventory}_{\text{4 weeks}} = \frac{4}{6} \times 2400 = 1600 \text{ jars}

Inventory for the remaining 2 weeks:
Since Jina receives strawberries from the farmer in 4-week batches, she would already have inventory for the remaining 2 weeks. Therefore, the inventory for the remaining 2 weeks is:
\text{Inventory}_{\text{2 weeks}} = \frac{2}{6} \times 2400 = 800 \text{ jars}

Step 2: Accounts Payable Calculation
The farmer supplies Jina with 4 weeks' worth of strawberries at a time, and Jina gets 2 weeks' credit. So, she will need to pay for 2 weeks' worth of strawberries.
To calculate the accounts payable, we need to find the cost of 2 weeks' worth of strawberries:

Cost of 1 week's worth of strawberries:
Given that Jina produces 2,400 jars in 6 weeks and gets 4 weeks' worth at a time, the cost of 4 weeks' worth of strawberries is:
\text{Cost}_{\text{4 weeks}} = \frac{4}{6} \times \text{Cost}_{\text{total}} = 2400 \times \text{Cost}_{\text{per jar}}

Cost of 2 weeks' worth of strawberries:
Since Jina gets 2 weeks' credit, she will need to pay for only 2 out of 4 weeks' worth of strawberries. Therefore, the accounts payable is:
\text{Accounts Payable} = \frac{2}{4} \times \text{Cost}_{\text{4 weeks}} = \frac{2}{4} \times 2400 \times \text{Cost}_{\text{per jar}}

Step 3: Accounts Receivable Calculation
The supermarket expects 4 weeks' credit from Jina. So, Jina will need to wait for 4 weeks before receiving payment for her products.
To calculate the accounts receivable, we need to find the revenue for 4 weeks:

Revenue for 1 week:
Given that Jina produces 2,400 jars in 6 weeks, the revenue for 6 weeks is:
\text{Revenue}_{\text{6 weeks}} = 2400 \times \text{Selling price per jar}

Revenue for 4 weeks:
Since the supermarket expects 4 weeks' credit, Jina will receive payment for 4 out of 6 weeks' worth of revenue. Therefore, the accounts receivable is:
\text{Accounts Receivable} = \frac{4}{6} \times \text{Revenue}_{\text{6 weeks}}

Step 4: Cash Flows Calculation
To calculate the cash flows, we need to consider the amounts paid to the farmer, received from the supermarket, and the overall change in cash.

Cash paid to the farmer:
The cost of 2 weeks' worth of strawberries that Jina needs to pay to the farmer is the accounts payable calculated in step 2.

Cash received from the supermarket:
The accounts receivable calculated in step 3 represents the cash that Jina will receive from the supermarket after 4 weeks' credit.

Overall change in cash:
The overall change in cash is the cash received from the supermarket minus the cash paid to the farmer.

Step 5: Prepare the Financial Statements

Statement of Financial Position:
Assets: Inventory = Inventory for the first 4 weeks + Inventory for the remaining 2 weeks
Liabilities: Accounts Payable

Statement of Cash Flows:
Cash flows from operating activities: Cash paid to the farmer + Cash received from the supermarket

Income Statement:
Revenue = Revenue for 4 weeks
Expenses = Cost of 2 weeks' worth of strawberries

\textbf{Answer:}
Statement of Financial Position:
Assets: Inventory = 1600 jars + 800 jars
Liabilities: Accounts Payable

Statement of Cash Flows:
Cash flows from operating activities = Accounts Payable - Accounts Receivable

Income Statement:
Revenue = Revenue for 4 weeks
Expenses = Cost of 2 weeks' worth of strawberries

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