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Case 23-2 Statement of Cash Flows Cindy Flores and Carlos Esteban are examining the following statement of cash flows for Miami Clothes, Inc.'s first
Case 23-2 Statement of Cash Flows Cindy Flores and Carlos Esteban are examining the following statement of cash flows for Miami Clothes, Inc.'s first year of operations. The fiscal year is from March 1, Year 1 to February 28, Year 2 Miami Clothes, Inc. Statement of Cash Flows For the Year Ended February 28, Year 2 Sources of cash: From sales of merchandise From sale of capital stock From sale of investment From depreciation AFrom issuance of note for truck From interest on investments Total sources of cash Uses of cash: For purchase of fixtures and equipment For merchandise purchased for resale and sold For operating expenses (including depreciation) For purchase of investment sold. For purchase of truck by issuance of note For purchase of treasury stock For interest on note Total uses of cash Net increase in cash $ 362,000 400,000 120,000 80,000 30,000 8,000 1,000,000 340,000 253,000 170,000 85,000 30,000 10,000 3,000 891,000 $109,000 Cindy claims that Miami's Statement of Cash Flows is an excellent portrayal of a superb first year, with cash increasing $109,000. Carlos 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. Questions: 1. 2. 3. 4. With whom do you agree, Cindy or Carlos regarding the presentation of the Statement of Cash Flows? Explain your position. Using the data provided, prepare a Statement of Cash Flows in proper form using the direct method. (Hint-You will need to determine the Net Income/Loss for Miami Clothes, Inc.) Is the net increase in cash of $109,000 as calculated correct? If not, what is the correct net increase in cash? Was Miami Clothes, Inc.'s first year a success or failure? Explain your position.
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