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, 2020 Computer services revenue $ 25,007 Net sales 17,893 Total revenue 42,900 Cost of goods sold $ 14,652 Depreciation expense—Office equipment 370 Depreciation expense—Computer equipment 1,250 Wages expense 2,950 Insurance expense 475 Rent expense 1,575 Computer supplies expense 1,285 Advertising expense 580 Mileage expense 260 Repairs expense—Computer 860 Total expenses 24,257 Net income $ 18,643 BUSINESS SOLUTIONS Comparative Balance Sheets December 31, 2019, and March 31, 2020 Mar. 31, 2020 Dec. 31, 2019 Assets Cash $ 77,407 $ 57,102 Accounts receivable 23,767 4,868 Inventory 694 0 Computer supplies 2,085 500 Prepaid insurance 1,030 1,605 Prepaid rent 805 805 Total current assets 105,788 64,880 Office equipment 7,500 7,500 Accumulated depreciation—Office equipment (740 ) (370 ) Computer equipment 19,000 19,000 Accumulated depreciation—Computer equipment (2,500 ) (1,250 ) Total assets $ 129,048 $ 89,760 Liabilities and Equity Accounts payable $ 0 $ 1,200 Wages payable 945 500 Unearned computer service revenue 0 2,400 Total current liabilities 945 4,100 Equity Common stock 106,000 78,000 Retained earnings 22,103 7,660 Total liabilities and equity $ 129,048 $ 89,760

Required: Prepare a statement of cash flows for Business Solutions using the indirect method for the three months ended March 31, 2020. Owner Santana Rey contributed $28,000 to the business in exchange for additional stock in the first quarter of 2020 and has received $4,200 in cash dividends. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Business Solutions
Statement of Cash Flows
For Quarter Ended March 31, 2020
Cash flows from Operating activities:
Net income		$18643
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense—Office equipment	370
Depreciation expense—Computer equipment	1250
Increase in accounts receivable (23767-4868)	-18899
Increase in inventories (694-0)	-694
Increase in computer supplies (2085-500)	-1585
Decrease in prepaid insurance (1605-1030)	575
Decrease in accounts payable	-1200
Increase in wages payable (945-500)	445
Decrease in unearned computer service revenue (2400-0)	-2400	-22138
Net cash flow provided by (used in) operating activities		-3495
Cash flows from Investing activities:
Net cash provided by (used in) investing activities		0
Cash flows from Financing activities:
Issuance of common stock	28000
Cash dividends paid	-4200
Net cash provided by (used in) financing activities		23800
Cash increase in cash (-3495+0+23800)		$20305
Add: Cash balance, Dec 31, 2019		57102
Cash balance, Mar 31, 2020		$77407