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, 2017
Sources of cash
	From sales of merchandise		$	375,000
	From sale of common stock			364,000
	From sale of investment			114,000
	From depreciation			74,000
	From issuance of note for truck			27,000
	From interest on investments			7,000
	Total sources of cash			961,000
Uses of cash
	For purchase of fixtures and equipment			320,000
	For merchandise purchased for resale			248,000
	For operating expenses (including depreciation)			164,000
	For purchase of investment			91,000
	For purchase of truck by issuance of note			27,000
	For purchase of treasury stock			9,000
	For interest on note			2,700
	Total uses of cash			861,700
Net Increase in Cash			$	99,300

Teresa claims that Sandhill’s statement of cash flows is an excellent portrayal of a superb first year, with cash increasing $99,300. Lenny replies that it was not a superb first year—that the year was an operating failure, the statement was incorrectly presented, and $99,300 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). (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Answer 1

SANDHILL CLOTHING STORE
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JANUARY 31, 2017
Cash Flow Statement by indirect Method
Detail		Amount in $)
Cash Generated from Operating Activities
Net Income		-37000
Add : Depreciation ( Not Cash inflow/outflow)		74000
Net Cash Provided by Operating activities (A)		37000
Cash Generated from Investment Activities
For purchase of fixtures and equipment		-320000
For purchase of investment		-91,000
For purchase of truck by issuance of note ( Not Cash inflow/outflow)
For purchase of treasury stock		-9000
Interest on Note		-2700
Sale of Investmetn		114000
Interest on Investment		7000
Net Cash provided by Investing activities (B)		-301700
Cash Generated from Finance   Activities
Sale proced from common stock		364000
Net Cash provided by Financiang Activities ©		364000
Net Cash Generated ( A+B+C)		99300
Working Note
Income Statement
Detail		Amount in (S)
Sales of Merchadise		375000
For merchandise purchased for resale		248000
For operating expenses (including depreciation)		164000
EBT		-37000
Deperication		74000
EBIT		37000