Bob Soakup and Clare Karr are examining the following statement of cash flows for Baldwin Company for the year ended January 31, 2012.

Bob claims that Baldwin’s statement of cash flows is an excellent portrayal of a superb first year with cash increasing $95,000. Clare replies that it was not a superb first year. Rather, she says, the year was an operating failure, that the statement is presented incorrectly, and that $95,000 is not the actual increase in cash. The cash balance at the beginning of the year was $140,000.
Instructions With the class divided into groups, answer the following.

(a) 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.

(b) With whom do you agree, Bob or Clare? Explain your position.
COMMUNICATION ACTIVITY

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BALDWIN COMPANY Statement of Cash Flows For the Year Ended January 31, 2012 Sources of cash From sales of merchandise $385,000 From sale of capital stock 405,000 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