The following statement was prepared by Maloney Corporation's accountant.
Maloney Corporation
STATEMENT OF SOURCES AND USES OF CASH
FOR THE YEAR ENDED SEPTEMBER 30, 2019
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 (excluding current maturities of long-term debt)................................................14,000
................................................................................$374,000
Application of cash
Cash dividends..............................................................$ 60,000
Expenditure for property, plant, and equipment........................214,000
Investments and other uses..................................................20,000
Change in cash.................................................................80,000
................................................................................$374,000
The following additional information relating to Maloney Corporation is available for the year ended September 30, 2019.
1. Salaries and wages expense attributable to share-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 share dividend of 10,000 Maloney Corporation ordinary shares was distributed to ordinary share-holders on April 1, 2019, when the per share market price was $7 and par value was $1.
4. On July 1, 2019, when its market price was $6 per share, 16,000 of Maloney Corporation ordinary shares were issued in exchange for 4,000 preference shares.
5. Depreciation expense........................$ 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
Instructions
a. In general, what are the objectives of a statement of the type shown above for Maloney Corporation? Explain.
b. Identify the weaknesses in the form and format of Maloney 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.