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    Statement of cash flows

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    BYP12-6 Ron Nord and Lisa Smith are examining the following statement of cash flows for Carpino Company for the year ended January 31, 2007.
    Statement of Cash Flows
    For the Year Ended January 31, 2007
    Sources of cash
    From sales of merchandise $380,000
    From sale of capital stock 420,000
    From sale of investment (purchased below) 80,000
    From depreciation 55,000
    From issuance of note for truck 20,000
    From interest on investments 6,000
    Total sources of cash 961,000
    Uses of cash
    For purchase of fixtures and equipment 330,000
    For merchandise purchased for resale 258,000
    For operating expenses (including depreciation) 160,000
    For purchase of investment 75,000
    For purchase of truck by issuance of note 20,000
    For purchase of treasury stock 10,000
    For interest on note payable 3,000
    Total uses of cash 856,000
    Net increase in cash $ 105,000
    Ron claims that Carpino's statement of cash flows is an excellent portrayal of a superb first year with cash increasing $105,000. Lisa replies that it was not a superb first year. Rather, she says, the year was an operating failure, that the statement is presented incorrectly, and that $105,000 is not the actual increase in cash. The cash balance at the beginning of the year was $140,000.
    With the class divided into groups, answer the following.
    (a) Using the data provided, prepare a statement of cash flows in proper form using the indirect method. The only noncash items in the income statement are depreciation and the gain from the sale of the investment.
    (b) With whom do you agree, Ron or Lisa? Explain your position.

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    Solution Summary

    The solution explains how to prepare a statement of cash flows in proper form.