Analyzing the Cash Position of Good Time, Inc.

The following data show the account balances of Good Time, Inc., at the beginning and end of the company’s fiscal year:

The following information concerning this year was also available:

a. All purchases and sales were on account.

b. Equipment with an original cost of $5,000 was sold for $1,500; a loss of $500 was recognized on the sale.

c. Among other items, the operating expenses included depreciation expense of $3,500; interest expense of $1,400; and insurance expense of $1,200.

d. Equipment was purchased by issuing common stock and paying the balance ($6,000)
in cash.

e. Treasury stock was sold for $2,000 less than it cost; the decrease in stockholders’ equity was recorded by reducing Retained Earnings.

f. No dividends were paid this year.
You are to examine Good Time’s cash position by:
1. Preparing schedules showing the amount of cash collected from accounts receivable, cash paid for accounts payable, cash paid for interest, and cash paid for insurance.
2. Preparing a statement of cash flows for Good Time for the fiscal year 2009 using the direct method.
3. Identifying the major reasons why Good Time’s cash and cash equivalents increased so dramatically during the year.
4. Comment on whether the dividend policy seems appropriate under the current circumstances.

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Cash and cash equivalents Accounts receivable (net). Inventory Prepaid insurance Long-term investments (cost equals market) Equipment Treasury stock (at cost) Cost of goods sold Operating expenses Income taxes Loss on sale of equipment Total debits Aug. 31, 2009 Sept. 1, 2008 Debits $ 88,200 $ 29,000 15,000 13,300 10,500 12,700 2,800 2,000 3,000 8,400 40,000 33,000 5,000 10,000 184,000 93,500 18,800 500 $461,300 $108,400