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[SOLVED] 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 Changes December
31, 2011
 

  Debit Credit
  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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