Reference no: EM13342386
(Analysis of Improper SCF) The following statement was prepared by Maloney Corporation's accountant.
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MALONEY CORPORATION
STATEMENT OF SOURCES AND APPLICATION OF CASH
FOR THE YEAR ENDED SEPTEMBER 30, 2012
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Sources of cash
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Net income
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$111,000
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Depreciation and depletion
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70,000
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Increase in long-term debt
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179,000
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Changes in current receivables and inventories, less current
liabilities (excluding current maturities of long-term debt)
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14,000
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$374,000
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Application of cash
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Cash dividends
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$ 60,000
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Expenditure for property, plant, and equipment
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214,000
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Investments and other uses
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20,000
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Change in cash
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80,000
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$374,000
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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.
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2. Expenditures for property, plant, and equipment
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$250,000
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Proceeds from retirements of property, plant, and equipment
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36,000
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Net expenditures
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$214,000
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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 $6 per share, 16,000 shares of Maloney Corporation common stock were issued in exchange for 4,000 shares of preferred stock.
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5. Depreciation expense
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$ 65,000
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Depletion expense
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5,000
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$ 70,000
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6. Increase in long-term debt
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$620,000
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Retirement of debt
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441,000
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Net increase
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$179,000
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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.
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