Pete Kent and Maria Robles are examining the following summary of cash flows for Sullivan Company for the year ended January 31, 2025.

Pete claims that this summary shows that Sullivan had a superb first year, with cash increasing \(\$ 40,000\). Maria replies that it was not a superb first year. Rather, she says, the year was an operating failure and that \(\$ 40,000\) 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, determine the net income/(loss) for the year ended January 31, 2025. Depreciation expense was \(\$ 55,000\).

b. 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.

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

Transcribed Image Text:

Inflows Sales revenue Capital stock sales Sale of investment (purchased below) Proceeds from note (to purchase truck below) Interest received on investments Total Outflows Purchase of fixtures and equipment Cost of merchandise purchased for resale Payment of operating expenses Purchase of investment Purchase of truck with note proceeds (shown above) Purchase of treasury stock Payment of interest on note payable Total Net increase in cash $385,000 405,000 80,000 20,000 6,000 896,000 $320,000 258,000 170,000 75,000 20,000 10,000 3,000 856,000 $ 40,000