Question

In: Accounting

You are the CFO for Tom & Jerry’s, Inc. Together with Tom Fheelein and Jerry Rhodeint,...

You are the CFO for Tom & Jerry’s, Inc. Together with Tom Fheelein and Jerry Rhodeint, the company’s two shareholders, you are examining the following statement of cash flows which they prepared for Tom & Jerry’s, Inc. for the year ended January 31, 2015.

TOM & JERRYS’S, INC.

Statement of Cash Flows

For the Year Ended January 31, 2015

Sources of cash

From sales of merchandise

$380,000

From sale of capital stock

410,000

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

951,000

Uses of cash

For purchase of fixtures and equipment

320,000

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

846,000

Net increase in cash

$105,000


Tom claims that this statement of cash flows is an excellent portrayal of a superb first year with cash increasing $105,000. Jerry replies that it was not a superb first year. Rather, he says, the year was an operating failure as the statement is presented incorrectly and $105,000 is not the actual increase in cash. The cash balance at the beginning of the year was $140,000.

Instructions

A. Using the data provided, prepare a statement of cash flows using the indirect method. The only noncash item in the income statement is depreciation. The purchase/sale of the investment and any resulting gain/loss are investing (not operating) activities. Hint: You may need to figure out net income for the year.

B. With whom do you agree, Tom or Jerry? Explain your position.

Solutions

Expert Solution

From the information given, it appears that from an operating standpoint,
Tom & Jerry inc. did not have a superb first year, having suffered a $30,000
net loss. Jerry is correct; the statement of cash flows is not prepared in correct
form. The sources and uses format is no longer the acceptable form. The
correct format classifies cash flows from three activities—operating, investing,
and financing; and it also presents significant noncash investing and financing
activities in a separate schedule. Jerry is wrong, however, about the actual increase
in cash not being $105,000; $105,000 is the correct increase in cash.

Related Solutions

You are the CFO for Tom & Jerry’s, Inc. Together with Tom Fheelein and Jerry Rhodeint,...
You are the CFO for Tom & Jerry’s, Inc. Together with Tom Fheelein and Jerry Rhodeint, the company’s two shareholders, you are examining the following statement of cash flows which they prepared for Tom & Jerry’s, Inc. for the year ended January 31, 2015. TOM & JERRYS’S, INC. Statement of Cash Flows For the Year Ended January 31, 2015 Sources of cash From sales of merchandise $380,000 From sale of capital stock 410,000 From sale of investment (purchased below) 80,000...
You are the CFO for Tom & Jerry’s, Inc. Together with Tom Fheelein and Jerry Rhodeint,...
You are the CFO for Tom & Jerry’s, Inc. Together with Tom Fheelein and Jerry Rhodeint, the company’s two shareholders, you are examining the following statement of cash flows which they prepared for Tom & Jerry’s, Inc. for the year ended January 31, 2015. TOM & JERRYS’S, INC. Statement of Cash Flows For the Year Ended January 31, 2015 Sources of cash From sales of merchandise $380,000 From sale of capital stock 410,000 From sale of investment (purchased below) 80,000...
You are the CFO for Tom & Jerry's, Inc. Together with Tom Freeman and Jerry Freeloader,...
You are the CFO for Tom & Jerry's, Inc. Together with Tom Freeman and Jerry Freeloader, the company's two shareholders, you are examining the following statement of cash flows which they prepared for the Tom & Jerry's, Inc. for the year ended January 31, 2019. Tom & Jerry's, Inc. Statement of Cash Flows For the Year Ended January 31, 2019 Sources of cash From sales of merchandise $380,000 sale of capital stock 410,000 sale of investment (purchased below) 80,000 depreciation...
Tom is the agent of Jerry. Recently Jerry had instructed Tom to sell only two out...
Tom is the agent of Jerry. Recently Jerry had instructed Tom to sell only two out of the five shop lots he (Jerry) owned in Kota Damansara. Instead Tom sold all five shop lots since he received such a good price for them. When Jerry was told of the deal and the price Tom received, Jerry was very pleased. Explain the following to Jerry. question:The conditions necessary before ratification is possible; (Use IRAC format to answer )
Tom hired Jerry to negotiate the acquisition of a business for him. Jerry agreed and signed...
Tom hired Jerry to negotiate the acquisition of a business for him. Jerry agreed and signed a contract with no term. He then decided that he wanted to acquire the business himrself. He validly terminated the contract with Tom. He:    can now buy the business him-self only with Tom's permission.    cannot buy the business under any circumstances.    can now buy the business herself but He must pay Tom a referral fee.    can now buy the business...
Ben & Jerry’s Homemade JERRY: What’s interesting about me and my role in the company is...
Ben & Jerry’s Homemade JERRY: What’s interesting about me and my role in the company is I’m just this guy on the street. A person who’s fairly conventional, mainstream, accepting of life as it is. BEN: Salt of the earth. A man of the people. JERRY: But then I’ve got this friend, Ben, who challenges everything. It’s against his nature to do anything the same way anyone’s ever done it before. To which my response is always, “I don’t think...
In this problem, consider Tom and Jerry in space and throwing a ball back and forth....
In this problem, consider Tom and Jerry in space and throwing a ball back and forth. Initially, they are at rest with respect to each other and are separated by a distance L0. For simplicity assume that they have the same mass, and that they both always throw the ball with the same speed V. a) If they are in ”open space” (no walls or ropes) what happens? i) To answer this, continue drawing a sequence of sketches below showing...
Joseph Moore, the CFO of Carla Vista Automotive, Inc., is putting together this year's financial statements....
Joseph Moore, the CFO of Carla Vista Automotive, Inc., is putting together this year's financial statements. He has gathered the following balance sheet information: The firm had a cash balance of $23,015, accounts payable of $163,257, common stock of $311,300, retained earnings of $512,159, inventory of $213,000, goodwill and other assets equal to $78,656, net plant and equipment of $714,100, and short-term notes payable of $21,115. It also had accounts receivable of $141,258 and other current assets of $11,223. How...
Anthony Walker, the CFO of Sandhill Automotive, Inc., is putting together this year's financial statements. He...
Anthony Walker, the CFO of Sandhill Automotive, Inc., is putting together this year's financial statements. He has gathered the following balance sheet information: The firm had a cash balance of $23,015, accounts payable of $163,257, common stock of $312,000, retained earnings of $512,159, inventory of $210,800, goodwill and other assets equal to $78,656, net plant and equipment of $715,000, and short-term notes payable of $21,115. It also had accounts receivable of $141,258 and other current assets of $11,223. How much...
Joseph Moore, the CFO of Carla Vista Automotive, Inc., is putting together this year's financial statements....
Joseph Moore, the CFO of Carla Vista Automotive, Inc., is putting together this year's financial statements. He has gathered the following balance sheet information: The firm had a cash balance of $23,015, accounts payable of $163,257, common stock of $311,300, retained earnings of $512,159, inventory of $213,000, goodwill and other assets equal to $78,656, net plant and equipment of $714,100, and short-term notes payable of $21,115. It also had accounts receivable of $141,258 and other current assets of $11,223. How...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT