Pete Kent and Maria Robles are examining the following statement of cash fl ows for Sullivan Company for the year ended January 31, 2017. LO11 SULLIVAN COMPANY Statement of Cash Flows For the Year Ended January 31, 2017 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 Uses of cash For purchase of fixtures and equipment 320,000 For merchandise purchased for resale 258,000 For operating expenses (including depreciation) 170,000 For purchase of investment 75,000 For purchase of truck by issuance of note 20,000 For purchase of treasury stock 10,000 For interest on note payable 3,000 Total uses of cash 856,000 Net increase in cash $ 95,000 Pete claims that Sullivan’s statement of cash fl ows is an excellent portrayal of a superb fi rst year with cash increasing $95,000. Maria replies that it was not a superb fi rst 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 fl ows 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, Pete or Maria? Explain your position.

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