Prepare a statement of cash flows for kirby garok

Assignment Help Accounting Basics

Reference no: EM131896088

Problem

Kirby Garok and Jana Kingston are examining the following statement of cash flows for Poquito Trading Ltd. For the year ended 31 January 2016.

POQUITO TRADING LTD.

Staterment of Cash Flows

For the year ended 31 January 2016

Sources of cash
From sale of inventory	P390,000
From issue of shares	420,000
From sale of investment (purchased below)	80,000
From depreciation	55,000
From issue of bond for truck	25,000
From interest on investments	6,000
Total sources of cash	P976,000
Uses of Cash
For purchase of property, plant and equipment	P 320,000
For inventory purchased for resale (all sold)	258,000
For expenses (including depreciation)	160,000
For purchase of investment	75,000
For purchase of truck by issue of bond	25,000
For purchase of notes	10,000
For interest on bonds payable	3,000
Total uses of cash	P851,000
Net Increases in cash	P125,000

Kirby claims that Poquito's statement of cash flows is an excellent example of a superb first year, with cash increasing P125,000. Jana replies that it was not a superb first year---but rather, that the year was an operating failure. She says that the statement was incorrectly presented and that P125,000 is not the actual increase in cash. The cash balance at the beginning of the year was P140,000.

Required:

1. With whom do you agree, Kirby or Jana? Explain.
2. Using the data provided, prepare a statement of cash flows using the indirect method. The only non-cash items in the income statement are depreciation and the gain from the sale of the investment.

Reference no: EM131896088

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