Gazelle Corporation, a merchandiser, recently completed its calendar- year 2013 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.

Additional Information on Year 2013 Transactions

a. The loss on the cash sale of equipment was $ 2,100 (details in b).

b. Sold equipment costing $51,000, with accumulated depreciation of $22,850, for $26,050 cash.

c. Purchased equipment costing $ 113,250 by paying $ 43,250 cash and signing a long- term note payable for the balance.

d. Borrowed $ 5,000 cash by signing a short- term note payable.

e. Paid $ 47,500 cash to reduce the long- term notes payable.

f. Issued 3,000 shares of common stock for $ 15 cash per share.

g. Declared and paid cash dividends of $ 53,600.

Required

1. Prepare a complete statement of cash flows; report its operating activities using the indirect method. Disclose any noncash investing and financing activities in a note.

Analysis Component

2. Analyze and discuss the statement of cash flows prepared in part 1, giving special attention to the wisdom of the cash dividend payment.

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GAZELLE CORPORATION Comparative Balance Sheets December 31, 2013 and 2012 2012 2013 Assets $ 61,550 Cash $123,450 GAZELLE CORPORATION Income Statement Accounts receivable 77,100 80,750 For Year Ended December 31, 2013 Merchandise inventory 240,600 250,700 17,000 Sales ... 200,000 Cost of goods sold (95,000 Gross profit .... $515.000 Operating expenses Prepaid expenses Equipment . Accum. depreciation-Equipment ... 15,100 $1,185,000 262,250 595,000 (110,750) $607,750 590,000 Total assets $ 38,600 Depreciation expense Other expenses Total operating expenses Liabilities and Equity 362,850 $ 17,750 Accounts payable Short-term notes payable $102,000 ....... 401,450 15,000 10,000 188,550 Long-term notes payable Common stock, $5 par 100,000 77,500 Other gains (losses) Loss on sale of equipment. 0 Income before taxes 12.500 Income taxes expense $515.000 Net income ....... 215,000 200,000 (2,100) Paid-in capital in excess of par, common stock 30,000 186,450 Retained earnings Total liabilities and equity 230,000 $607,750 28,350 ...... $ 158,100 ........ ......