Kazaam Company, a merchandiser, recently completed its calendar-year 2011 operat
ID: 2375153 • Letter: K
Question
Kazaam Company, a merchandiser, recently completed its calendar-year 2011 operations. 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 credit, (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. The company%u2019s balance sheets and income statement follow.
KAZAAM COMPANY
Comparative Balance Sheets
December 31, 2011 and 2010
2011 2010
Assets
Cash $ 49,200 $ 74,000
Accounts receivable 65,810 55,000
Merchandise inventory 276,000 251,000
Prepaid expenses 1,500 1,900
Equipment 159,000 107,500
Accum. depreciation%u2014Equipment (35,750) (46,000)
Total assets $ 515,760 $ 443,400
Liabilities and Equity
Accounts payable $ 59,835 $ 112,000
Short-term notes payable 10,000 6,000
Long-term notes payable 70,000 49,000
Common stock, $5 par value 162,250 150,250
Paid-in capital in excess of par, common stock 36,000 0
Retained earnings 177,675 126,150
Total liabilities and equity $ 515,760 $ 443,400
KAZAAM COMPANY
Income Statement
For Year Ended December 31, 2011
Sales $ 582,500
Cost of goods sold 289,000
Gross profit 293,500
Operating expenses
Depreciation expense $ 20,000
Other expenses 133,600 153,600
Other gains (losses)
Loss on sale of equipment 5,375
Income before taxes 134,525
Income taxes expense 25,500
Net income $ 109,025
Additional Information on Year 2011 Transactions
a.
The loss on the cash sale of equipment was $5,375 (details in b).
b.
Sold equipment costing $47,250, with accumulated depreciation of $30,250, for $11,625 cash.
c.
Purchased equipment costing $98,750 by paying $35,000 cash and signing a long-term note payable for the balance.
d.
Borrowed $4,000 cash by signing a short-term note payable.
e.
Paid $42,750 cash to reduce the long-term notes payable.
f.
Issued 2,400 shares of common stock for $20 cash per share.
g. Declared and paid cash dividends of $57,500.
Required:
Prepare a complete statement of cash flows using a spreadsheet report its operating activities using the indirect method. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)
a. Net income was $109,025.
b. Accounts receivable increased.
c. Merchandise inventory increased.
d. Prepaid expenses decreased.
e. Accounts payable decreased.
f. Depreciation expense was $20,000.
g.
Sold equipment costing $47,250, with accumulated depreciation of $30,250, for $11,625 cash. This yielded a loss of $5,375.
h.
Purchased equipment costing $98,750 by paying $35,000 cash and (i.) by signing a long-term note payable for the balance.
j. Borrowed $4,000 cash by signing a short-term note payable.
k. Paid $42,750 cash to reduce the long-term notes payable.
l. Issued 2,400 shares of common stock for $20 cash per share.
m. Declared and paid cash dividends of $57,500.
KAZAAM COMPANY
Spreadsheet for Statement of Cash Flows
For Year Ended December 31, 2011
December
31, 2010 Analysis of Changes December
31, 2011
Debit Credit
Balance sheet%u2014debit bal. accounts
Cash $ $ $ $
Accounts receivable
Merchandise inventory
Prepaid expenses
Equipment
$ $
Balance sheet%u2014credit bal. accounts
Accum. depreciation%u2014Equip. $ $
Accounts payable
Short-term notes payable
Long-term notes payable
Common stock, $5 par value
Paid-in capital in excess of
par value, common stock
Retained earnings
$ $
Statement of cash flows
Operating activities
Net income
Increase in accts. receivable
Increase in merch. inventory
Decrease in prepaid expenses
Decrease in accounts payable
Depreciation expense
Loss on sale of equipment
Investing activities
Receipt from sale of equipment
Payment to purchase equipment
Financing activities
Borrowed on short-term note
Payment on long-term note
Issued common stock for cash
Payments of cash dividends
Noncash investing and financing activities
Purchase of equip. financed
by long-term note payable
$ $
Explanation / Answer
Operating activities
119,075 net income
+ 20,000 depreciation expense
- 7,810 increase in accounts receivable
- 23,000 increase in inventory
+ 650 decrease in prepaid expenses
- 66,815 decrease in accounts payable
+ 5,000 increase in short-term notes payable
+ 5,625 loss on sale of equipment
= $52,725 cash flows from operating activities
Investing activities
+ 11,625 sale of equipment
- 35,000 purchase of equipment
= ($23,375) cash used by investing activities
Financing activities
- 47,750 payment on long term note
+ 48,000 issuance of common stock
- 53,700 payment of dividends
= ($53,450) cash used by financing activities
52,725 - 23,375 - 53,450 = ($24,100) total cash used by all activities
+ 73,500 beginning cash balance
= $49,400 ending cash balance
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