Georgia 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.

Additional Information on Year 2011 Transactions

a. The loss on the cash sale of equipment was $5,875 (details in b).

b. Sold equipment costing $46,500, with accumulated depreciation of $29,000, for $11,625 cash.

c. Purchased equipment costing $97,500 by paying $35,000 cash and signing a long-term note payable for the balance.

d. Borrowed $3,000 cash by signing a short-term note payable.

e. Paid $40,500 cash to reduce the long-term notes payable.

f. Issued 2,350 shares of common stock for $20 cash per share.

g. Declared and paid cash dividends of $51,900.

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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GEORGIA COMPANY Comparative Balance Sheets December 31, 2011 and 2010 2011 2010 Assets Cash Accounts receivable*... 65,840 Merchandise inventory Prepaid expenses Equipment Accum. deprecation Equipment.(43,000 (52,000) Sales Total assets Liabilities and Equity Accounts payable Short-term notes payablel0,000 Long-term notes payable70,000 Common stock, $5 par value 62,750 5,000 Other gains (losses) 49,800 73,500 56,000 277,000 252,000 1,500 GEORGIA COMPANY Income Statement For Year Ended December 31, 2011 . 1,000 $584,500 281,000 303,500 $509.140 5438,500 Cost of goods sold Gross profit. 42,965 $113,000 Operating expenses 7,000 Depreclation expense 20,000 48,000 Other expenses 132,800 152,800 5,875 144,825 24,250 $120,575 Loss on sale of equipment 0 Income before taxes *... Paid-in capital in excess of par, common stock Retained earnings Total liabilities and equity . . . . . . . . . . $509, 140 35,250 188,175 119,500 Income taxes expense. . . $438,500 Net income