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€™s balance sheets and income statement follow.

Additional Information on Year 2011 Transactions
a. The loss on the cash sale of equipment was $5,125 (details in b).
b. Sold equipment costing $46,875, with accumulated depreciation of $28,125, for $13,625 cash.
c. Purchased equipment costing $96,375 by paying $25,000 cash and signing a long-term note payable for the balance.
d. Borrowed $3,750 cash by signing a short-term note payable.
e. Paid $31,375 cash to reduce the long-term notes payable.
f. Issued 2,500 shares of common stock for $18 cash per share.
g. Declared and paid cash dividends of $62,125.
Required
1. Prepare a complete statement of cash flows; report its operating activities using the indirect method. Disclose any noncash investing and financing activities in a note.
Analysis Component
2. Analyze and discuss the statement of cash flows prepared in part 1, giving special attention to the wisdom of the cash dividendpayment.

Transcribed Image Text:

KAZAAM COMPANY Comparative Balance Sheets December 31,2011 and 2010 2011 20 53.875 76,625 65,000 49.625 273.750 252,500 6,250 Equipment .59,500 110,000 4.625)44.000) $522,875 $451,000 KAZAAM COMPANY Income Statement For Year Ended December 31,2011 Accounts recelvable Merchandise Inventory Prepaid expenses 5,375 $496,250 Accum. Sales..**r. Cost of goods sold Gross profit .. Operating expenses 250.000 Total assets 246,250 Liabilities and Equity Depreclation expense$ 18,750 Short-term notes payable Long-term notes payable. Common stock, $5 par value 6,250 93,750 53,750 168,750 156,250 10.000 Other expenses Other gains (losses) 136,500 1,250L Loss on sale of equipment . . income before taxes Income taxes expense . Net Income 525 Pald-In capital in excess 85,875 32,500 129,750 18,125 $522,875 $451,000 of par, common stock 12,125 Retalned earnings $ 73,750 Total Ilablllties and equlty