Academic Integrity: tutoring, explanations, and feedback — we don’t complete graded work or submit on a student’s behalf.

Kazaam Company, a merchandiser, recently completed its calendar-year 2011 operat

ID: 2375153 • Letter: K

Question

Kazaam Company, a merchandiser, recently completed its calendar-year 2011 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, and (5) Other Expenses are paid in advance and are initially debited to Prepaid Expenses. The company%u2019s balance sheets and income statement follow.

KAZAAM COMPANY
Comparative Balance Sheets
December 31, 2011 and 2010
     2011         2010
Assets                       
Cash    $    49,200            $    74,000  
Accounts receivable         65,810                 55,000  
Merchandise inventory         276,000                 251,000  
Prepaid expenses         1,500                 1,900  
Equipment         159,000                 107,500  
Accum. depreciation%u2014Equipment         (35,750)               (46,000)
    
    
Total assets    $    515,760            $    443,400  
    
    
Liabilities and Equity                       
Accounts payable    $    59,835            $    112,000  
Short-term notes payable         10,000                 6,000  
Long-term notes payable         70,000                 49,000  
Common stock, $5 par value         162,250                 150,250  
Paid-in capital in excess of par, common stock         36,000                 0  
Retained earnings         177,675                 126,150  
    
    
Total liabilities and equity    $    515,760            $    443,400  
    
    

KAZAAM COMPANY
Income Statement
For Year Ended December 31, 2011
Sales                   $    582,500
Cost of goods sold                        289,000
                   
Gross profit                        293,500
Operating expenses                       
       Depreciation expense    $    20,000              
       Other expenses         133,600               153,600
    
         
Other gains (losses)                       
       Loss on sale of equipment                        5,375
                   
Income before taxes                        134,525
Income taxes expense                        25,500
                   
Net income                   $    109,025
                   

Additional Information on Year 2011 Transactions
a.   
The loss on the cash sale of equipment was $5,375 (details in b).
b.   
Sold equipment costing $47,250, with accumulated depreciation of $30,250, for $11,625 cash.
c.   
Purchased equipment costing $98,750 by paying $35,000 cash and signing a long-term note payable for the balance.
d.   
Borrowed $4,000 cash by signing a short-term note payable.
e.   
Paid $42,750 cash to reduce the long-term notes payable.
f.   
Issued 2,400 shares of common stock for $20 cash per share.
g.    Declared and paid cash dividends of $57,500.

Required:
Prepare a complete statement of cash flows using a spreadsheet report its operating activities using the indirect method. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

a.    Net income was $109,025.
b.    Accounts receivable increased.
c.    Merchandise inventory increased.
d.    Prepaid expenses decreased.
e.    Accounts payable decreased.
f.    Depreciation expense was $20,000.
g.   
Sold equipment costing $47,250, with accumulated depreciation of $30,250, for $11,625 cash. This yielded a loss of $5,375.
h.   
Purchased equipment costing $98,750 by paying $35,000 cash and (i.) by signing a long-term note payable for the balance.
j.    Borrowed $4,000 cash by signing a short-term note payable.
k.    Paid $42,750 cash to reduce the long-term notes payable.
l.    Issued 2,400 shares of common stock for $20 cash per share.
m.    Declared and paid cash dividends of $57,500.


KAZAAM COMPANY
Spreadsheet for Statement of Cash Flows
For Year Ended December 31, 2011
     December
31, 2010    Analysis of Changes    December
31, 2011
    
     Debit    Credit
Balance sheet%u2014debit bal. accounts                  
     Cash    $       $       $       $  
     Accounts receivable               
     Merchandise inventory               
     Prepaid expenses               
     Equipment               
    
         
     $                 $  
    
         
Balance sheet%u2014credit bal. accounts                  
     Accum. depreciation%u2014Equip.    $               $  
     Accounts payable               
     Short-term notes payable               
     Long-term notes payable               
     Common stock, $5 par value               
     Paid-in capital in excess of
      par value, common stock               
     Retained earnings               
    
         
     $                 $  
    
         
Statement of cash flows                  
Operating activities                  
     Net income                
     Increase in accts. receivable                
     Increase in merch. inventory                
     Decrease in prepaid expenses                
     Decrease in accounts payable                
     Depreciation expense                
     Loss on sale of equipment                
Investing activities                  
     Receipt from sale of equipment                
     Payment to purchase equipment                
Financing activities                  
     Borrowed on short-term note                
     Payment on long-term note                
     Issued common stock for cash                
     Payments of cash dividends                
Noncash investing and financing activities                  
     Purchase of equip. financed
      by long-term note payable                
         

          $       $      

Explanation / Answer

Operating activities
119,075 net income
+ 20,000 depreciation expense
- 7,810 increase in accounts receivable
- 23,000 increase in inventory
+ 650 decrease in prepaid expenses
- 66,815 decrease in accounts payable
+ 5,000 increase in short-term notes payable
+ 5,625 loss on sale of equipment
= $52,725 cash flows from operating activities

Investing activities
+ 11,625 sale of equipment
- 35,000 purchase of equipment
= ($23,375) cash used by investing activities

Financing activities
- 47,750 payment on long term note
+ 48,000 issuance of common stock
- 53,700 payment of dividends
= ($53,450) cash used by financing activities

52,725 - 23,375 - 53,450 = ($24,100) total cash used by all activities
+ 73,500 beginning cash balance
= $49,400 ending cash balance