POQUITO TRADING LTD.

Jay Drake and Jane Doe are examining the following statement of cash flows for Poquito Trading Ltd. For the year ended 31 January 2016.

Jay claims that Poquitos statement of cash flows is an excellent example of a superb first year, with cash increasing P125,000. Jane replies that it was not a superb first year---but rather, that the year was an operating failure. She says that the statement was incorrectly presented and that P125,000 is not the actual increase in cash. The cash balance at the beginning of the year was P140,000.

Required:

1. With whom do you agree, Jay or Jane? Give an explanation.

2. Using the data provided, prepare a statement of cash flows using the indirect method. The only non-cash items in the income statement are depreciation and the gain from the sale of the investment.

POQUITO TRADING LTD Statement of Cash Flows For the year ended 31 January 2016 Sources of cash From sale of inventory From issue of shares From sale of investment (purchased below) From depreciation From issue of bond for truck From interest on investments Total sources of cash Uses of Cash For purchase of property, plant and equipment For inventory purchased for resale (all sold) For expenses (including depreciation) For purchase of investment For purchase of truck by issue of bond For purchase of notes For interest on bonds payable Total uses of cash Net Increases in cash P390,000 420,000 80,000 55,000 25,000 6,000 P976,000 P 320.000 258,000 160,000 75,000 25,000 10,000 3,000 P851,000 P125.000