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Analysis of Improper SCF

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Analysis of Improper SCF;(Analysis of Improper SCF) The following statement was prepared by Maloney Corporation?s accountant.;MALONEY CORPORATION;STATEMENT OF SOURCES AND APPLICATION OF CASH;FOR THE YEAR ENDED SEPTEMBER 30, 2012;Sources of cash;Net income;$111,000;Depreciation and depletion;70,000;Increase in long-term debt;179,000;Changes in current receivables and inventories, less current;liabilities (excluding current maturities of long-term debt);14,000;$374,000;Application of cash;Cash dividends;$ 60,000;Expenditure for property, plant, and equipment;214,000;Investments and other uses;20,000;Change in cash;80,000;$374,000;The following additional information relating to Maloney Corporation is available for the year ended;September 30, 2012.;1. Wage and salary expense attributable to stock option plans was $25,000 for the year.;2. Expenditures for property, plant, and equipment;$250,000;Proceeds from retirements of property, plant, and equipment;36,000;Net expenditures;$214,000;3. A stock dividend of 10,000 shares of Maloney Corporation common stock was distributed to common stockholders on April 1, 2012, when the per share market price was $7 and par value was $1.;4. On July 1, 2012, when its market price was $6 per share, 16,000 shares of Maloney Corporation common stock were issued in exchange for 4,000 shares of preferred stock.;5. Depreciation expense;$ 65,000;Depletion expense;5,000;$ 70,000;6. Increase in long-term debt;$620,000;Retirement of debt;441,000;Net increase;$179,000;Instructions;(a) In general, what are the objectives of a statement of the type shown above for Maloney Corporation? Explain.;(b) Identify the weaknesses in the form and format of Maloney Corporation?s statement of cash flows without reference to the additional information. (Assume adoption of the indirect method.);(c) For each of the six items of additional information for the statement of cash flows, indicate the preferable treatment and explain why the suggested treatment is preferable.

 

Paper#28765 | Written in 18-Jul-2015

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