Question

Santana Rey, owner of Business Solutions, decides to prepare a statement of cash flows for her business using the following financial data. BUSINESS SOLUTIONS Income Statement For Three Months Ended March 31, 2018 Computer services revenue $ 24,507 Net sales 18,193 Total revenue 42,700 Cost of goods sold $ 14,252 Depreciation expense—Office equipment 380 Depreciation expense—Computer equipment 1,180 Wages expense 2,950 Insurance expense 495 Rent expense 2,075 Computer supplies expense 1,285 Advertising expense 600 Mileage expense 250 Repairs expense—Computer 910 Total expenses 24,377 Net income $ 18,323 BUSINESS SOLUTIONS Comparative Balance Sheets December 31, 2017, and March 31, 2018 Mar. 31, 2018 Dec. 31, 2017 Assets Cash $ 75,517 $ 55,302 Accounts receivable 24,167 4,968 Inventory 674 0 Computer supplies 2,005 560 Prepaid insurance 1,080 1,625 Prepaid rent 755 755 Total current assets 104,198 63,210 Office equipment 7,200 7,200 Accumulated depreciation—Office equipment (760 ) (380 ) Computer equipment 19,500 19,500 Accumulated depreciation—Computer equipment (2,360 ) (1,180 ) Total assets $ 127,778 $ 88,350 Liabilities and Equity Accounts payable $ 0 $ 1,200 Wages payable 895 590 Unearned computer service revenue 0 2,200 Total current liabilities 895 3,990 Equity Common stock 106,000 77,000 Retained earnings 20,883 7,360 Total liabilities and equity $ 127,778 $ 88,350 Required: Prepare a statement of cash flows for Business Solutions using the indirect method for the three months ended March 31, 2018. Owner Santana Rey contributed $29,000 to the business in exchange for additional stock in the first quarter of 2018 and has received $4,800 in cash dividends.

Answer 1

Solution:

Business Solutions
Statement of Cash Flows
For year Quarter Ended March 31, 2018
Particulars	Details	Amount
Cash Flow from Operating Activities:
Net Income		$18,323.00
Adjustments to reconcile net income to net cash provided by operations:
Depreciation Expense - Office Equipment	$380.00
Depreciation Expense - Computer Equipment	$1,180.00
Increase in accounts receivables ($24,167 - $4,968)	-$19,199.00
Increase in inventory	-$674.00
Increase in Computer Supplies ($2,005 - $560)	-$1,445.00
Decrease in prepaid insurance ($1625 - $1,080)	$545.00
Decrease in accounts payable	-$1,200.00
Increase in wages payable ($895 - $590)	$305.00
Decrease in unearned computer service revenue	-$2,200.00
Total Adjustments		-$22,308.00
Net Cash provided by operating activities		-$3,985.00
Cash Flow from Investing Activities:		$0.00
Cash Flow from Financing Activities:
Proceed from issue of common stock ($106,000 - $77,000)	$29,000.00
Dividend Paid	-$4,800.00
Net Cash Provided by financing activities		$24,200.00
Net Increase / (Decrease) in Cash		$20,215.00
Cash balance, Dec 31, 2017		$55,302.00
Cash balance, Mar 31, 2018		$75,517.00