Refer to the information reported about Kazaam Company?

Question

Required

Prepare a complete statement of cash flows using a spreadsheet as in Exhibit 16A.1; report its operating activities using the indirect method. Identify the debits and credits in the Analysis of Changes columns with letters that correspond to the following list of transactions and events:

a. Net income is $73,750.

b. Accounts receivable increased.

c. Merchandise inventory increased.

d. Prepaid expenses decreased.

e. Accounts payable decreased.

f. Depreciation expense is $18,750.

g. Sold equipment costing $46,875, with accumulated depreciation of $28,125, for $13,625 cash. This yielded a loss of $5,125.

h. Purchased equipment costing $96,375 by paying $25,000 cash and (i.) by signing a long-term note payable for the balance.

j. Borrowed $3,750 cash by signing a short-term note payable.

k. Paid $31,375 cash to reduce the long-term notes payable.

l. Issued 2,500 shares of common stock for $18 cash per share.

m. Declared and paid cash dividends of $62,125.

Answer 1

I've already prepared the cash flow statement in your other question. The debits and credits in the Analysis of Changes columns (in the cash flow statement portion of the worksheet, NOT in the balance sheet portion) are as follows:

a. Net income is $73,750 (Debit)

b. Accounts receivable increased (Credit)

c. Merchandise inventory increased (Credit)

d. Prepaid expenses decreased (Debit)

e. Accounts payable decreased (Credit)

f. Depreciation expense is $18,750 (Debit)

g. Sold equipment costing $46,875, with accumulated depreciation of $28,125, for $13,625 cash (Debit)

This yielded a loss of $5,125 (Debit)

h. Purchased equipment costing $96,375 by paying $25,000 cash (Credit) and

(i.) by signing a long-term note payable for the balance (shown in a note)

j. Borrowed $3,750 cash by signing a short-term note payable (Debit)

k. Paid $31,375 cash to reduce the long-term notes payable

(Credit)

l. Issued 2,500 shares of common stock for $18 cash per share (Debit)

m. Declared and paid cash dividends of $62,125 (Credit)