Reference no: EM13342386

(Analysis of Improper SCF) The following statement was prepared by Maloney Corporation's accountant.

MALONEY CORPORATION STATEMENT OF SOURCES AND APPLICATION OF CASH FOR THE YEAR ENDED SEPTEMBER 30, 2012
Sources of cash
Net income	$111,000
Depreciation and depletion	70,000
Increase in long-term debt	179,000
Changes in current receivables and inventories, less current liabilities (excluding current maturities of long-term debt)	14,000
	$374,000
Application of cash
Cash dividends	$ 60,000
Expenditure for property, plant, and equipment	214,000
Investments and other uses	20,000
Change in cash	80,000
	$374,000

The following additional information relating to Maloney Corporation is available for the year ended

September 30, 2012.

1. Wage and salary expense attributable to stock option plans was $25,000 for the year.

2. Expenditures for property, plant, and equipment	$250,000
Proceeds from retirements of property, plant, and equipment	36,000
Net expenditures	$214,000

3. A stock dividend of 10,000 shares of Maloney Corporation common stock was distributed to common stockholders on April 1, 2012, when the per share market price was $7 and par value was $1.

4. On July 1, 2012, when its market price was $6 per share, 16,000 shares of Maloney Corporation common stock were issued in exchange for 4,000 shares of preferred stock.

5. Depreciation expense	$ 65,000
Depletion expense	5,000
	$ 70,000

6. Increase in long-term debt	$620,000
Retirement of debt	441,000
Net increase	$179,000

Instructions

(a) In general, what are the objectives of a statement of the type shown above for Maloney Corporation? Explain.

(b) Identify the weaknesses in the form and format of Maloney Corporation's statement of cash flows without reference to the additional information. (Assume adoption of the indirect method.)

(c) For each of the six items of additional information for the statement of cash flows, indicate the preferable treatment and explain why the suggested treatment is preferable.