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Statement of Cash Flow

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Problem 16-1B
Kite Corporation, a merchandiser recently completed its calendar year 2005. 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 credits, (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. Kite's balance sheet and income statement follow: See attachment.

Additional Information on Year 2005 Transactions
a. The loss on the cash sale of equipment is $2,100 (details in b)
b. Sold equipment costing $51,000 with accumulated depreciation of $20,850, for $28,050 cash.
c. Purchased equipment costing $113,250 by paying $38,250 cash and signing a long-term note payable for the balance
d. Borrowed $6,000 cash by signing a short-term note payable
e. Paid $45,000 cash to reduce the long-term note payable.
f. Issued $3,000 shares of common stock for $11 cash per share.
g. Declared and paid cash dividends of $63,000

Required
1. Prepare a complete statement of cash flows: report its operation activities using the indirect method. Disclose any noncash investing and financing activities in a note.
2. Analyze and discuss the statement of cash flows prepared in part 1, giving special attention to the wisdom of the cash dividend payment.

Problem 16-2B
Refer to Kite Corporation's Financial statement and related information in problem 16-1B

Required Prepare a complete statement of cash flows: report its operating activities according to the direct method. Disclose any noncash investing and financing activities in a note.

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Solution Summary

The solution explains how to prepare a statement of cash flows using direct and indirect methods

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Statement of Cash Flows: Time for change! SFAS No. 95

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As contained in the Week Four electronic reserve readings article readings, this article, Broome, O. W. (2004, March/April). Statement of cash flows: Time for change! Financial Analysts Journal, 60(2), 16. , describes the current SFAS No. 95 requirements for the statement of cash flows, cites recent cases of abuse and disinformation involving the statement, and makes significant recommendations for improving the statement. Based on the comments in the article do you think the three sections of the statement of cash flows provide enough information for the reader? Of the three which provides the most information or is this an 'it depends' answer?

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