Greg Rhoda and Debra Sondgeroth are examining the following statement of cash flows for K.K. Bean Trading Company for the year ended January 31, 2002.

Greg claims that K.K. Bean's statement of cash flows is an excellent portrayal of a su- perb first year with cash increasing \($85,000\). Debra replies that it was not a superb first year-but, rather, that the year was an operating failure, that the statement is presented incorrectly, and that \($85,000\) is not the actual increase in cash. The cash balance at the beginning of the year was $140,000.

Instruction

With the class divided into groups, answer the following.

(a) With whom do you agree, Greg or Debra? Explain your position.

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

Transcribed Image Text:

K.K. BEAN TRADING COMPANY Statement of Cash Flows For the Year Ended January 31, 2002 Sources of cash From sales of merchandise $370,000 From sale of capital stock 420,000 From sale of investment (purchased below) 80,000 From depreciation 55,000 From issuance of note for truck 20,000 From interest on investments 6,000 Total sources of cash 951,000 Uses of cash For purchase of fixtures and equipment 340,000 For merchandise purchased for resale 258,000 For operating expenses (including depreciation) For purchase of investment 160,000 75,000 For purchase of truck by issuance of note 20,000 For purchase of treasury stock For interest on note payable Total uses of cash Net increase in cash 10,000 3,000 866,000 $ 85.000