Reference no: EM131535878

Question: Refer to Kazaam Company's financial statements and related information in Problem. Required Prepare a complete statement of cash flows; report its operating activities according to the direct method. Disclose any noncash investing and financing activities in a note.

Problem: 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.

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 $28,125, for $13,625 cash.

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

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

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

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

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

Required: 1. Prepare a complete statement of cash flows; report its operating activities using the indirect method. Disclose any noncash investing and financing activities in a note.
Analysis Component

2. Analyze and discuss the statement of cash flows prepared in part 1, giving special attention to the wisdom of the cash dividend payment.