Problem - Kazaam Company, a merchandiser, recently completed its calendar-year 2011 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, and (5) Other Expenses are paid in advance and are initially debited to Prepaid Expenses. The company's balance sheets and income statement follow.
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KAZAAM COMPANY Comparative Balance Sheets December 31, 2011 and 2010
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2011
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2010
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Assets
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Cash
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$49,200
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$74,000
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Accounts receivable
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65,810
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55,000
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Merchandise inventory
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276,000
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251,000
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Prepaid expenses
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1,500
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1,900
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Equipment
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159,000
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107,500
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Accum. depreciation-Equipment
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$(35,750)
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(46,000)
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Total assets
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$515,760
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$443,400
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Liabilities and Equity
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Accounts payable
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$59,835
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$112,000
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Short-term notes payable
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10,000
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6,000
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Long-term notes payable
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70,000
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49,000
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Common stock, $5 par value
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162,250
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150,250
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Paid-in capital in excess of par, common stock
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36,000
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0
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Retained earnings
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177,675
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126,150
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Total liabilities and equity
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$515,760
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$443,400
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KAZAAM COMPANY Income Statement For Year Ended December 31, 2011
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Sales
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$582,500
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Cost of goods sold
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289,000
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Gross profit
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293,500
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Operating expenses
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Depreciation expense
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$20,000
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Other expenses
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133,600
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153,600
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Other gains (losses)
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Loss on sale of equipment
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5,375
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Income before taxes
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134,525
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Income taxes expense
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25,500
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Net income
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$109,025
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Additional Information on Year 2011 Transactions
a. The loss on the cash sale of equipment was $5,375 (details in b).
b. Sold equipment costing $47,250, with accumulated depreciation of $30,250, for $11,625 cash.
c. Purchased equipment costing $98,750 by paying $35,000 cash and signing a long-term note payable for the balance.
d. Borrowed $4,000 cash by signing a short-term note payable.
e. Paid $42,750 cash to reduce the long-term notes payable.
f. Issued 2,400 shares of common stock for $20 cash per share.
g. Declared and paid cash dividends of $57,500.
Required: Prepare a complete statement of cash flows using a spreadsheet report its operating activities using the indirect method.
a. Net income was $109,025.
b. Accounts receivable increased.
c. Merchandise inventory increased.
d. Prepaid expenses decreased.
e. Accounts payable decreased.
f. Depreciation expense was $20,000.
g. Sold equipment costing $47,250, with accumulated depreciation of $30,250, for $11,625 cash. This yielded a loss of $5,375.
h. Purchased equipment costing $98,750 by paying $35,000 cash and (i.) by signing a long-term note payable for the balance.
j. Borrowed $4,000 cash by signing a short-term note payable.
k. Paid $42,750 cash to reduce the long-term notes payable.
l. Issued 2,400 shares of common stock for $20 cash per share.
m. Declared and paid cash dividends of $57,500.