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Part 2 asked to settle an argument between a client and his inexperienced bookkeeper. Presented below is a Statement of Cash Flows prepared by the bookkeeper. Wild Apparel Statement of Cash Flows January 31, 2017 Sources of cash From sales of merchandise From sale of common stock From sale of investment From depreciation From issuance of note for truck From interest on investments $382,000 380,000 120,000 80,000 30,000 Total Sources of cash 1,000,000 Uses of cash For purchase of fixtures and equipment For merchandise purchased for resale For operating expenses (including depreciation) For purchase of investment For purchase of truck by issuance of note For purchase of treasury stock For interest on note 330,000 253,000 170,000 95,000 30,000 10,000 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). (Hint: Prepare an Income Statement first) 1. 2. Prepare the Operating Section of a Cash Flow Statement using the Direct Method 3. With whom do you agree, your client or the bookkeeper? Explain your position

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