Assignment Task:
You have been asked to settle an argument between a client and his inexperienced bookkeeper. Presented below is a Statement of Cash Flows prepared by the bookkeeper. Mango Republic Apparel Statement of Cash Flows January 31, 2025 Sources of cash From sales of merchandise $382,000 From sale of common stock 375,000 From sale of investment 125,000 From depreciation 78,000 From issuance of note for truck 30,000 From interest on investments 10,000 Total Sources of cash 1,000,000 Uses of cash For purchase of fixtures and equipment 330,000 For merchandise purchased for resale 255,000 For operating expenses(including depreciation) 170,000 For purchase of investment 95,000 For purchase of truck by issuance of note 30,000 For purchase of treasury stock 10,000 For interest on note 1,000 Total uses of cash 891,000 Net increase in cash $109,000 The bookkeeper claims this statement is an excellent portrayal of a great first year with an increase in cash of $109,000. Your client claims that the first year of operations was an operating failure and the $109,000 is not the increase in cash. Using the statement above, prepare a statement of cash flows in proper form using the indirect method. The only noncash items in income are depreciation and the gain from the sale of the investment (the purchase and the sale are related). With whom do you agree, your client or the bookkeeper? Explain your position.