Reference no: EM131884427

Problem - Kazaam 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.

KAZAAM COMPANY Comparative Balance Sheets December 31, 2011 and 2010
	2011	2010
Assets
Cash	$49,200	$74,000
Accounts receivable	65,810	55,000
Merchandise inventory	276,000	251,000
Prepaid expenses	1,500	1,900
Equipment	159,000	107,500
Accum. depreciation-Equipment	$(35,750)	(46,000)
Total assets	$515,760	$443,400
Liabilities and Equity
Accounts payable	$59,835	$112,000
Short-term notes payable	10,000	6,000
Long-term notes payable	70,000	49,000
Common stock, $5 par value	162,250	150,250
Paid-in capital in excess of par, common stock	36,000	0
Retained earnings	177,675	126,150
Total liabilities and equity	$515,760	$443,400

 

KAZAAM COMPANY Income Statement For Year Ended December 31, 2011
Sales		$582,500
Cost of goods sold		289,000
Gross profit		293,500
Operating expenses
Depreciation expense	$20,000
Other expenses	133,600	153,600
Other gains (losses)
Loss on sale of equipment		5,375
Income before taxes		134,525
Income taxes expense		25,500
Net income		$109,025

Additional Information on Year 2011 Transactions

a. The loss on the cash sale of equipment was $5,375 (details in b).

b. Sold equipment costing $47,250, with accumulated depreciation of $30,250, for $11,625 cash.

c. Purchased equipment costing $98,750 by paying $35,000 cash and signing a long-term note payable for the balance.

d. Borrowed $4,000 cash by signing a short-term note payable.

e. Paid $42,750 cash to reduce the long-term notes payable.

f. Issued 2,400 shares of common stock for $20 cash per share.

g. Declared and paid cash dividends of $57,500.

Required: Prepare a complete statement of cash flows using a spreadsheet report its operating activities using the indirect method.

a. Net income was $109,025.

b. Accounts receivable increased.

c. Merchandise inventory increased.

d. Prepaid expenses decreased.

e. Accounts payable decreased.

f. Depreciation expense was $20,000.

g. Sold equipment costing $47,250, with accumulated depreciation of $30,250, for $11,625 cash. This yielded a loss of $5,375.

h. Purchased equipment costing $98,750 by paying $35,000 cash and (i.) by signing a long-term note payable for the balance.

j. Borrowed $4,000 cash by signing a short-term note payable.

k. Paid $42,750 cash to reduce the long-term notes payable.

l. Issued 2,400 shares of common stock for $20 cash per share.

m. Declared and paid cash dividends of $57,500.