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Kazaam Company, a merchandiser, recently completed its calendar-year 201 1 operations.
Kazaam Company, a merchandiser, recently completed its calendar-year 201 1 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.0KAZAAM COMPANYIncome StatementFor Year Ended December 31 , 201 1$496,250250,000246,250Operating expenses Depreciation expense . . . . . . . . . . . . $ 1 8,750 Other expenses . . . . . . . . . . . . . . . . . 1 36,500 1 55,250Other gains (losses)5,1 2585,8751 2,1 25$ 73,750KAZAAM COMPANYComparative Balance SheetsDecember 31 , 201 1 and 201 0 201 1 201 0Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 53,875 $ 76,625. . . . . . . . . . . . . . . . . . . 65,000 49,625Merchandise inventory . . . . . . . . . . . . . . . . . 273,750 252,500. . . . . . . . . . . . . . . . . . . . . 5,375 6,250Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 59,500 1 1 0,000. . . . . . . . . (34,625) (44,000). . . . . . . . . . . . . . . . . . . . . . . . . . $522,875 $451 ,000Liabilities and Equity. . . . . . . . . . . . . . . . . . . . . $ 88,1 25 $1 1 6,625Short-term notes payable . . . . . . . . . . . . . . . 1 0,000 6,250. . . . . . . . . . . . . . . 93,750 53,750Common stock, $5 par value . . . . . . . . . . . . 1 68,750 1 56,250Paid-in capital in excess of par, common stock . . . . . . . . . . . . . . . . 32,500 0. . . . . . . . . . . . . . . . . . . . . 1 29,750 1 1 8,1 25Total liabilities and equity . . . . . . . . . . . . . . . $522,875 $451 ,000Additional 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.Check Cash from operating activities, $33,375
