Teresa Ramirez and Lenny Traylor are examining the following statement of cash f

Question

Teresa Ramirez and Lenny Traylor are examining the following statement of cash flows for Sandhill Clothing Store’s first year of operations.

Teresa claims that Sandhill’s statement of cash flows is an excellent portrayal of a superb first year, with cash increasing $99,300. Lenny replies that it was not a superb first year—that the year was an operating failure, the statement was incorrectly presented, and $99,300 is not the actual increase in cash.

Using the data provided, prepare a statement of cash flows in proper indirect method form. The only noncash items in income are depreciation and the gain from the sale of the investment (purchase and sale are related). (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

SANDHILL CLOTHING STORE
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JANUARY 31, 2017 Sources of cash From sales of merchandise $ 375,000 From sale of common stock 364,000 From sale of investment 114,000 From depreciation 74,000 From issuance of note for truck 27,000 From interest on investments 7,000   Total sources of cash 961,000 Uses of cash For purchase of fixtures and equipment 320,000 For merchandise purchased for resale 248,000 For operating expenses (including depreciation) 164,000 For purchase of investment 91,000 For purchase of truck by issuance of note 27,000 For purchase of treasury stock 9,000 For interest on note 2,700   Total uses of cash 861,700 Net Increase in Cash $ 99,300

Explanation / Answer

SANDHILL CLOTHING STORE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JANUARY 31, 2017 Cash Flow Statement by indirect Method Detail Amount in $) Cash Generated from Operating Activities Net Income -37000 Add : Depreciation ( Not Cash inflow/outflow) 74000 Net Cash Provided by Operating activities (A) 37000 Cash Generated from Investment Activities For purchase of fixtures and equipment -320000 For purchase of investment -91,000 For purchase of truck by issuance of note ( Not Cash inflow/outflow) For purchase of treasury stock -9000 Interest on Note -2700 Sale of Investmetn 114000 Interest on Investment 7000 Net Cash provided by Investing activities (B) -301700 Cash Generated from Finance   Activities Sale proced from common stock 364000 Net Cash provided by Financiang Activities © 364000 Net Cash Generated ( A+B+C) 99300 Working Note Income Statement Detail Amount in (S) Sales of Merchadise 375000 For merchandise purchased for resale 248000 For operating expenses (including depreciation) 164000 EBT -37000 Deperication 74000 EBIT 37000

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