Question: Pete Kent and Maria Robles are examining the following statement of cash fl ows for Sullivan Company for the year ended January 31, 2017.
Pete claims that Sullivan's statement of cash flows is an excellent portrayal of a superb first year with cash increasing $95,000. Maria replies that it was not a superb first year. Rather, she says, the year was an operating failure, that the statement is presented incorrectly, and that $95,000 is not the actual increase in cash. The cash balance at the beginning of the year was $140,000.
Instructions: With the class divided into groups, answer the following.
(a) Using the data provided, prepare a statement of cash flows in proper form using the indirect method. The only noncash items in the income statement are depreciation and the gain from the sale of the investment.
(b) With whom do you agree, Pete or Maria? Explain your position.