Question: Teresa Ramirez and Lenny Traylor are examining
Teresa Ramirez and Lenny Traylor are examining the following statement of cash flows for Pacific Clothing Store’s first year of operations.
Teresa claims that Pacific’s statement of cash flows is an excellent portrayal of a superb first year, with cash increasing $109,000. Lenny replies that it was not a superb first year—that the year was an operating failure, the statement was incorrectly presented, and $109,000 is not the actual increase in cash.
Instructions
a. With whom do you agree, Teresa or Lenny? Explain your position.
b. 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).
Transcribed Image Text:
PACIFIC CLOTHING STORE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JANUARY 31, 2017 Sources of cash $ 382,000 380,000 120,000 80,000 30,000 8,000 From sales of merchandise From sale of common stock From sale of investment From depreciation From issuance of note for truck From interest on investments Total sources of cash 1,000,000 Uses of cash For purchase of fixtures and equipment For merchandise purchased for resale For operating expenses (including depreciation) For purchase of investment For purchase of truck by issuance of note For purchase of treasury stock For interest on note 330,000 253,000 170,000 95,000 30,000 10,000 3,000 Total uses of cash 891,000 Net increase in cash $ 109,000
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