Teresa Ramirez and Lenny Traylor are examining the following statement of cash flows for Panaka Clothing Store’s first year of operations.

Teresa claims that Panaka’s statement of cash flows is an excellent portrayal of a superb first year, with cash increasing €109,000. Lenny replies that it was not a superb first year—that the year was an operating failure, the statement was incorrectly presented, and €109,000 is not the actual increase in cash.
Instructions

(a) With whom do you agree, Teresa or Lenny? Explain your position.

(b) Using the data provided, prepare a statement of cash flows in proper indirect method form. The only non-cash items in income are depreciation and the gain from the sale of the investment (purchase and sale are related).

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PANAKA CLOTHING STORE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JANUARY 31, 2015 Sources of cash From sales of merchandise From sale of ordinary shares 382,000 380,000 From sale of debt investment From depreciation From issuance of note for truck From interest on investments Total sources of cash Uses of cash 120,000 80,000 30,000 8,000 1,000,000 For purchase of fixtures and equipment 330,000 For merchandise purchased for resale 253,000 For operating expenses (including depreciation) 170,000 For purchase of debt investment 95,000 For purchase of truck by issuance of note 30,000 For purchase of treasury shares For interest on note Total uses of cash Net increase in cash 10,000 3,000 891,000 109,000