Question

The following transactions occurred during March 2018 for the Wainwright Corporation. The company owns and operates a wholesale warehouse.

1. Issued 50,000 shares of capital stock in exchange for $500,000 in cash.

2.Purchased equipment at a cost of $80,000. $30,000 cash was paid and a note payable was signed for the balance owed.

3.Purchased inventory on account at a cost of $130,000. The company uses the perpetual inventory system.

4.Credit sales for the month totaled $140,000. The cost of the goods sold was $90,000.

5.Paid $7,000 in rent on the warehouse building for the month of March.

6.Paid $8,000 to an insurance company for fire and liability insurance for a one-year period beginning April 1, 2018.

7.Paid $90,000 on account for the merchandise purchased in 3.

8.Collected $75,000 from customers on account.

9.Recorded depreciation expense of $3,000 for the month on the equipment.

Required: Prepare a statement of cash flows, using the direct method to present cash flows from operating activities. Assume the cash balance at the beginning of the month was $60,000.

Answer 1

Solution:

Wainwright Corporation
Cash Flow Statement (Direct Method)
Cash Flow from Operating Activities:		$$	$$
+	Cash Received from Customers	$75,000
-	Cash paid for purchase of Inventory	-$90,000
-	Cash paid for rent	-$7,000
-	Cash paid for insurance	-$8,000
Net Cash used by Operative Activities			-$30,000
Cash Flow from Investing Activities:
-	Purchase of Equipment (Cash)	-$30,000
Net Cash used by Investing Activities			-$30,000
Cash Flow from Financing Activities:
+	Issuance of Shares	$500,000
Net Cash provided by Financing Activities			$500,000
Net Increase/(Decrease) in Cash and Cash Equivalents			$440,000
Cash and Cash Equivalents at the beginning of the year			$60,000
Cash and Cash Equivalents at the end of the year			$500,000

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