Purcells, Inc., sells a single product (Pulsa) exclusively through newspaper advertising. The comparative income statements and balance

Question:

Purcells, Inc., sells a single product (Pulsa) exclusively through newspaper advertising. The comparative income statements and balance sheets are for the past two years.

Additional Information
The following information regarding the company’s operations in 2021 is available from the company’s accounting records.
1. Early in the year the company declared and paid a $4,000 cash dividend.
2. During the year marketable securities costing $15,000 were sold for $11,000 cash, resulting in a $4,000 nonoperating loss.
3. The company purchased plant assets for $20,000, paying $8,000 in cash and issuing a note payable for the $12,000 balance.
4. During the year the company repaid a $10,000 note payable, but incurred an additional $12,000 in long-term debt as described in 3.
5. The owners invested $35,000 cash in the business as a condition of the new loans described in paragraphs 3 and 4.

Instructions.
a. Prepare a worksheet for a statement of cash flows, following the example shown in Exhibit 13–7.
b. Prepare a formal statement of cash flows for 2021, including a supplementary schedule of noncash investing and financing activities. (Use the format illustrated in Exhibit 13–8. Cash provided by operating activities is to be presented by the indirect method.)
c. Explain how Purcells, Inc., achieved positive cash flows from operating activities, despite incurring a net loss for the year.
d. Does the company’s financial position appear to be improving or deteriorating? Explain.
e. Does Purcells, Inc., appear to be a company whose operations are growing or contracting? Explain.
f. Assume that management agrees with your conclusions in parts c, d, and e. What decisions should be made and what actions (if any) should be taken? Explain.