Problem #1 Statement of Cash Flows

The following Statement of Cash Flows was prepared for the Baines Corporation.

Walker Corporation

Statement of Sources and Uses of Cash

Year Ended December 31, 2017

Sources of cash

Net income $111,000

Depreciation and depletion 70,000

Increase in long-term debt 179,000

Changes in current receivables and inventories,

less current liabilities 14,000

$374,000

Uses of cash

Cash dividends $ 60,000

Expenditure for property, plant, and equipment 214,000

Investments and other uses 20,000

Change in cash 80,000

The following additional information relating to Walker Corporation is available for the year ended December 31, 2017.

1. Wage and salary expense attributable to stock option plans was $25,000 for the year.

2. Expenditures for property, plant, and equipment $250,000

Proceeds from retirements of property, plant, and equipment 36,000

Net expenditures $214,000

3. A stock dividend of 10,000 shares of Walker Corporation common stock was distributed to common stockholders on April 1, 2017, when the per share market price was $7 and par value was $1.

4. On July 1, 2017, when its market price was $6 per share, 16,000 shares of Walker Corporation common stock were issued in exchange for 4,000 shares of preferred stock.

5. Depreciation expense $ 65,000

Depletion expense 5,000

$ 70,000

6. Increase in long-term debt $620,000

Retirement of debt 441,000

Net increase $179,000

Required:

A. In general, what are the objectives of a statement of the type shown above for Walker Corporation? Explain

B. Identify the weaknesses in the form and format of Walker Corporation's statement of cash flows without reference to the additional information. (Assume adoption of the indirect method.)

C. For each of the six items of additional information for the statement of cash flows, indicate the preferable treatment and explain why the suggested treatment is preferable.