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Question(s) / Instruction(s):

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

$

49,600   

 

$

73,500   

  Accounts receivable

 

65,870   

 

 

60,000   

  Merchandise inventory

 

278,000   

 

 

251,000   

  Prepaid expenses

 

1,000   

 

 

1,600   

  Equipment

 

158,000   

 

 

107,500   

  Accum. depreciation—Equipment

 

(35,500)  

 

 

(46,000)  

 



 



  Total assets

$

516,970   

 

$

447,600   

 





 





  Liabilities and Equity

 

 

 

 

 

  Accounts payable

$

64,945   

 

$

114,000   

  Short-term notes payable

 

10,000   

 

 

7,000   

  Long-term notes payable

 

60,000   

 

 

48,500   

  Common stock, $5 par value

 

162,750   

 

 

150,500   

  Paid-in capital in excess of par, common stock

 

36,750   

 

 

0   

  Retained earnings

 

182,525   

 

 

127,600   

 



 



  Total liabilities and equity

$

516,970   

 

$

447,600   

 





 






  

KAZAAM COMPANY
Income Statement
For Year Ended December 31, 2011

  Sales

 

 

 

$

583,500  

  Cost of goods sold

 

 

 

 

289,000  

 

 

 

 



  Gross profit

 

 

 

 

294,500  

  Operating expenses

 

 

 

 

 

       Depreciation expense

$

20,000  

 

 

 

       Other expenses

 

134,000  

 

 

154,000  

 



 

 

 

  Other gains (losses)

 

 

 

 

 

       Loss on sale of equipment

 

 

 

 

5,125  

 

 

 

 



  Income before taxes

 

 

 

 

135,375  

  Income taxes expense

 

 

 

 

24,250  

 

 

 

 



  Net income

 

 

 

$

111,125  

 

 

 

 






  

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 $47,250, with accumulated depreciation of $30,500, for $11,625 cash.

c.

Purchased equipment costing $97,750 by paying $30,000 cash and signing a long-term note payable for the balance.

d.

Borrowed $3,000 cash by signing a short-term note payable.

e.

Paid $56,250 cash to reduce the long-term notes payable.

f.

Issued 2,450 shares of common stock for $18 cash per share.

g.

Declared and paid cash dividends of $56,200.

  

Required:

1.

Prepare a complete statement of cash flows; report its operating activities using the indirect method.(Amounts to be deducted should be indicated with a minus sign. Omit the "$" sign in your response.)

  

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