Part 1:

Adam Tomulka is founder and owner of a Beach Body Ltd health club. His club operates in Toronto, Ontario and has been in the same location since 2014. The health club offers a variety of services to its members (group classes, personal training etc.). The club also will put on special “fitness” events. The fitness facility has everything - free weights, squat racks, cardio machines (treadmills, bikes and ellipticals), yoga mats, stability balls, pull-up bars, etc. Since Adam charges a premium for the membership to the club, he is constantly looking at updating and expanding the fitness equipment. This past year he purchased a number of weighted battle ropes, new rowing machines a number of additional kettle bells. You have been presented with the following summarized information from his statement of cash flows for the year ended December 31, 2019:

Cash from operations        2,250 

Cash from investing activities          (26,250)

Cash from financing activities            18,300 

Adam is a good friend of your and provided the following statement: "My accountant is preparing our financial report and she told me that my business is facing cash flow problems." Adam wants your help understanding how the Statement of Cash Flows will assist in managing the business. In your response, include the following

• What was the net change in cash for the period? 

• Examine the cash flow pattern for Beach Body Ltd. What does this pattern say about the situation the company is in?  Was his friend justified in saying that the business may be facing cash flow problems?

• Explain each type of cash flow and provide an example of the types of transactions that make up the operating, investing and financing section of cash flow statement. 

• Explain the potential causes of cash flow problems, as well as proposed solutions to solve the cash flow problems. 

Prepare a reply for Adam.   

Part 2

Fresh Dinner Inc. is a catering company that sells meal kits that its customers can take home and quickly prepare. The company sells its meal kits at local grocery stores and has recently begun to offer a monthly subscription service, which delivers meal kits to the customer's home.

Single meal kits can be purchased at grocery stores. Approximately 12% of the kits shipped to grocery stores each month are returned unsold and are then discarded. Fresh Dinner Inc. charges the grocery stores $15 for each meal kit. In December 2020, Fresh Dinner Inc. began selling three-month subscriptions for $900. Subscriptions are paid in advance and are non-cancellable. Fresh Dinner Inc. sold 1,000 subscriptions on December 1, 2020 which entitle the subscriber to 16 meal kits each month beginning in December 2020. During December, 5,500 meal kits were sold, on account, to grocery stores and all required subscriber meals were delivered. Grocery stores have 30-day terms of payment with Fresh Dinner Inc.

Required: 

Determine how much revenue Fresh Dinner would be able to recognize in 2020. Use the five-step model for revenue recognition in preparing your response 

Part 3: 

Explain why recognizing revenue has no impact on the underlying economic activity of the entity.