Kazaam Company, a merchandiser, recently completed its calendar-year 2011 operations. For the year, (1) all sales are credit sales, (2)...

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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$49,800    $74,000   
  Accounts receivable 65,810     51,000   
  Merchandise inventory 278,000     251,500   
  Prepaid expenses 1,000     1,900   
  Equipment 158,000     106,000   
  Accum. depreciation—Equipment (41,750)    (52,000)  
 
 
  Total assets$510,860    $432,400   
 
 
  Liabilities and Equity     
  Accounts payable$69,735    $115,000   
  Short-term notes payable 12,000     7,000   
  Long-term notes payable 60,000     48,750   
  Common stock, $5 par value 162,000     150,250   
  Paid-in capital in excess of par, common stock 35,250     0   
  Retained earnings 171,875     111,400   
 
 
  Total liabilities and equity$510,860    $432,400   
 
 

  

KAZAAM COMPANY
Income Statement
For Year Ended December 31, 2011
  Sales   $583,500  
  Cost of goods sold    286,000  
    
  Gross profit    297,500  
  Operating expenses     
       Depreciation expense$20,000     
       Other expenses 132,400    152,400  
 
   
  Other gains (losses)     
       Loss on sale of equipment    5,125  
    
  Income before taxes    139,975  
  Income taxes expense    23,000  
    
  Net income   $116,975  
    

  

Additional Information on Year 2011 Transactions
a.

The loss on the cash sale of equipment was $5,125 (details in b).

b.

Sold equipment costing $46,875, with accumulated depreciation of $30,250, for $11,500 cash.

c.

Purchased equipment costing $98,875 by paying $25,000 cash and signing a long-term note payable for the balance.

d.

Borrowed $5,000 cash by signing a short-term note payable.

e.

Paid $62,625 cash to reduce the long-term notes payable.

f.

Issued 2,350 shares of common stock for $20 cash per share.

g.Declared and paid cash dividends of $56,500.

  

Required:

Prepare a complete statement of cash flows using a spreadsheet report its operating activities using the indirect method. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

  

a.Net income was $116,975.
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 $46,875, with accumulated depreciation of $30,250, for $11,500 cash. This yielded a loss of $5,125.

h.

Purchased equipment costing $98,875 by paying $25,000 cash and (i.) by signing a long-term note payable for the balance.

j.Borrowed $5,000 cash by signing a short-term note payable.
k.Paid $62,625 cash to reduce the long-term notes payable.
l.Issued 2,350 shares of common stock for $20 cash per share.
m.Declared and paid cash dividends of $56,500.

  

KAZAAM COMPANY
Spreadsheet for Statement of Cash Flows
For Year Ended December 31, 2011
 December
31, 2010		Analysis of ChangesDecember
31, 2011
 
 DebitCredit
  Balance sheet—debit bal. accounts    
     Cash$ [removed]  $ [removed]  $ [removed]  $ [removed]  
     Accounts receivable[removed]  [removed]  [removed]  [removed]  
     Merchandise inventory[removed]  [removed]  [removed]  [removed]  
     Prepaid expenses[removed]  [removed]  [removed]  [removed]  
     Equipment[removed]  [removed]  [removed]  [removed]  
 
  
 $ [removed]    $ [removed]  
 
  
  Balance sheet—credit bal. accounts    
     Accum. depreciation—Equip.$ [removed]  [removed]  [removed]  $ [removed]  
     Accounts payable[removed]  [removed]  [removed]  [removed]  
     Short-term notes payable[removed]  [removed]  [removed]  [removed]  
     Long-term notes payable[removed]  [removed]  [removed]  [removed]  
     Common stock, $5 par value[removed]  [removed]  [removed]  [removed]  
     Paid-in capital in excess of
      par value, common stock		[removed]  [removed]  [removed]  [removed]  
     Retained earnings[removed]  [removed]  [removed]  [removed]  
 
  
 $ [removed]    $ [removed]  
 
  
  Statement of cash flows    
  Operating activities    
     Net income [removed]  [removed]   
     Increase in accts. receivable [removed]  [removed]   
     Increase in merch. inventory [removed]  [removed]   
     Decrease in prepaid expenses [removed]  [removed]   
     Decrease in accounts payable [removed]  [removed]   
     Depreciation expense [removed]  [removed]   
     Loss on sale of equipment [removed]  [removed]   
  Investing activities    
     Receipt from sale of equipment [removed]  [removed]   
     Payment to purchase equipment [removed]  [removed]   
  Financing activities    
     Borrowed on short-term note [removed]  [removed]   
     Payment on long-term note [removed]  [removed]   
     Issued common stock for cash [removed]  [removed]   
     Payments of cash dividends [removed]  [removed]   
  Noncash investing and financing activities    
     Purchase of equip. financed
      by long-term note payable		 [removed]  [removed]   
  
 
   $ [removed]  $ [removed]   
  
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