Kazaam Company, a merchandiser, recently completed its calendar-year 2011 operat
ID: 2719268 • Letter: K
Question
Kazaam Company, a merchandiser, recently completed its calendar-year 2011 operations, for the year, 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's balance sheets and income statement follow. ADDITIONAL INFORMATION The Company sold two equipment during the period. The first equipment had a cost of $93,750, with accumulated depreciation of $56,250 and was sold for a loss. The second equipment was sold for a gain. The amount of the loss and gain is shown on the income statement. The company purchased equipment costing $313,200 by paying $100,000 cash and signing a long-term note oayable for the balance. The company borrowed $30,000 cash by signing a new short-term note payable. REQUIRED: Prepare a complete statement of cash flows; report its operating activities using the indirect method. Prepare a complete statement of cash flows; report its operating activities using the direct method.Explanation / Answer
Cash Flow Statement for the year ended Deccember 31, 2011
Indirect Method
Cash Flow statement for the year ended December 31, 2011
Direct Method
$ $ Cash flows from operating activities Income before taxes 357,500 Adjustment for non cash/ non operating items Depreciation 75,000 Loss on sale of equipment 20,500 Gain on sale of equipment (14,000) 81,500 Operating profit before adjustment for working capital changes 439,000 Increase in accounts receivable (77,750) Increase in merchandise inventory (185,000) Decrease in prepaid expenses 17,500 Decrease in accounts payable (114,000) Increase in short term notes payable 15,000 (344,250) Cash flows before Income tax 94,750 Income tax paid (111,000) Net cash used in operating activities (16,250) Cash flows from investing activities Proceeds from sale of equipment 81,000 Purchase of equipment (100,000) Net cash used in investing activities (19,000) Cash flows from financing activities Issue proceeds of common stock 180,000 Retirement of long term notes payable (53,200) Dividends paid (82,550) Net cash flows from financing activities 44,250 Net increase in cash and cash equivalents 9,000 Opening cash and cash equivalents 206,500 Closing cash and cash equivalents 215,500Related Questions
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