(SCF Theory and Analysis of Improper SCF) Gloria Estefan and Flaco Jimenez are examin- ing the following statement of cash flows for Tropical Clothing Store's first year of operations.

Gloria claims that Tropical’s statement of cash flows is an excellent portrayal of a superb first year, with cash increasing $109,000. Flaco 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, Gloria or Flaco? Explain your position.

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

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TROPICAL CLOTHING STORE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JANUARY 31, 2008 Sources of cash From sales of merchandise From sale of capital stock From sale of investment From depreciation From issuance of note for truck From interest on investments Total sources of cash $ 362,000 400,000 120,000 80,000 30,000 8,000 1,000,000 Uses of cash For purchase of fixtures and equipment 340,000 For merchandise purchased for resale 253,000 For operating expenses (including depreciation) 170,000 For purchase of investment 85,000 For purchase of truck by issuance of note 30,000 For purchase of treasury stock 10,000 For interest on note 3,000 Total uses of cash Net increase in cash 891,000 109,000