Kite Corporation, a merchandiser recently completed its calendar year 2005. 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 credits, (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. Kite's balance sheet and income statement follow: See attachment.
Additional Information on Year 2005 Transactions
a. The loss on the cash sale of equipment is $2,100 (details in b)
b. Sold equipment costing $51,000 with accumulated depreciation of $20,850, for $28,050 cash.
c. Purchased equipment costing $113,250 by paying $38,250 cash and signing a long-term note payable for the balance
d. Borrowed $6,000 cash by signing a short-term note payable
e. Paid $45,000 cash to reduce the long-term note payable.
f. Issued $3,000 shares of common stock for $11 cash per share.
g. Declared and paid cash dividends of $63,000
1. Prepare a complete statement of cash flows: report its operation activities using the indirect method. Disclose any noncash investing and financing activities in a note.
2. Analyze and discuss the statement of cash flows prepared in part 1, giving special attention to the wisdom of the cash dividend payment.
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