Question

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

SANDHILL CLOTHING STORE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JANUARY 31, 2020
Sources of cash
	From sales of merchandise		$	380,000
	From sale of common stock			378,500
	From sale of investment			124,500
	From depreciation			79,000
	From issuance of note for truck			31,000
	From interest on investments			7,600
	Total sources of cash			1,000,600
Uses of cash
	For purchase of fixtures and equipment			348,000
	For merchandise purchased for resale			255,500
	For operating expenses (including depreciation)			166,500
	For purchase of investment			91,000
	For purchase of truck by issuance of note			31,000
	For purchase of treasury stock			11,000
	For interest on note			3,100
	Total uses of cash			906,100
Net Increase in Cash			$	94,500

Teresa claims that Sandhill’s statement of cash flows is an excellent portrayal of a superb first year, with cash increasing $94,500. Lenny replies that it was not a superb first year—that the year was an operating failure, the statement was incorrectly presented, and $94,500 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).

Answer 1