"Its water is good."
Translation:Ĝia akvo estas bona.
I would like clarification on this too, as I had a select-the-words and because "estas" was not available I assumed "ĝia bonas akvo" was the correct order but it was not.
You cannot break up the subject. You do that, in your example, by putting the verb between the adjective and the noun.
Yes, "estas bona" can be shortened to "bonas". You can do that with all adjectives (if used in the predicative form).