Problem
Kirby Garok and Jana Kingston are examining the following statement of cash flows for Poquito Trading Ltd. For the year ended 31 January 2016.
POQUITO TRADING LTD.
Staterment of Cash Flows
For the year ended 31 January 2016
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Sources of cash
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|
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From sale of inventory
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P390,000
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From issue of shares
|
420,000
|
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From sale of investment (purchased below)
|
80,000
|
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From depreciation
|
55,000
|
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From issue of bond for truck
|
25,000
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From interest on investments
|
6,000
|
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Total sources of cash
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P976,000
|
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Uses of Cash
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|
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For purchase of property, plant and equipment
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P 320,000
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For inventory purchased for resale (all sold)
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258,000
|
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For expenses (including depreciation)
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160,000
|
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For purchase of investment
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75,000
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For purchase of truck by issue of bond
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25,000
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For purchase of notes
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10,000
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For interest on bonds payable
|
3,000
|
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Total uses of cash
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P851,000
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Net Increases in cash
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P125,000
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Kirby claims that Poquito's statement of cash flows is an excellent example of a superb first year, with cash increasing P125,000. Jana 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, Kirby or Jana? Explain.
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.