Pete Kent and Maria Robles are examining the following statement of cash flows for Sullivan Company for the year ended January 31, 2022. 

Pete claims that Sullivan’s statement of cash flows is an excellent portrayal of a superb first year with cash increasing $95,000. Maria replies that it was not a superb first year. Rather, she says, the year was an operating failure, that the statement is presented incorrectly, and that $95,000 is not the actual increase in cash. The cash balance at the beginning of the year was $140,000. 

Instructions 

With the class divided into groups, answer the following. 

a. Using the data provided, prepare a statement of cash flows in proper form using the indirect method. The only noncash items in the income statement are depreciation and the gain from the sale of the investment. 

b. With whom do you agree, Pete or Maria? Explain your position.

Transcribed Image Text:

Sullivan Company Statement of Cash Flows For the Year Ended January 31, 2022 Sources of cash From sales of merchandise $385,000 From sale of capital stock From sale of investment (purchased below) From depreciation 405,000 80,000 55,000 From issuance of note for truck 20,000 6,000 From interest on investments Total sources of cash 951,000 Uses of cash $320,000 For purchase of fixtures and equipment For merchandise purchased for resale For operating expenses (including depreciation) For purchase of investment For purchase of truck by issuance of note For purchase of treasury stock For interest on note payable 258,000 170,000 75,000 20,000 10,000 3,000 Total uses of cash 856,000 $ 95,000 Net increase in cash