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 $ 25,207 Net sales 17,993 Total revenue 43,200 Cost of goods sold $ 14,852 Depreciation expense—Office equipment 310 Depreciation expense—Computer equipment 1,250 Wages expense 2,850 Insurance expense 525 Rent expense 1,975 Computer supplies expense 1,285 Advertising expense 540 Mileage expense 310 Repairs expense—Computer 860 Total expenses 24,757 Net income $ 18,443 BUSINESS SOLUTIONS Comparative Balance Sheets December 31, 2019, and March 31, 2020 Mar. 31, 2020 Dec. 31, 2019 Assets Cash $ 74,567 $ 54,312 Accounts receivable 24,167 5,168 Inventory 614 0 Computer supplies 2,085 510 Prepaid insurance 1,060 1,655 Prepaid rent 825 825 Total current assets 103,318 62,470 Office equipment 7,500 7,500 Accumulated depreciation—Office equipment (620 ) (310 ) Computer equipment 19,700 19,700 Accumulated depreciation—Computer equipment (2,500 ) (1,250 ) Total assets $ 127,398 $ 88,110 Liabilities and Equity Accounts payable $ 0 $ 1,120 Wages payable 895 530 Unearned computer service revenue 0 1,500 Total current liabilities 895 3,150 Equity Common stock 104,000 77,000 Retained earnings 22,503 7,960 Total liabilities and equity $ 127,398 $ 88,110 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 $27,000 to the business in exchange for additional stock in the first quarter of 2020 and has received $3,900 in cash dividends. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Solution:

Business Solutions
Statement of Cash Flows
For year ended 2020
Particulars	Details	Amount
Cash Flow from Operating Activities:
Net Income	$18,443.00
Adjustments to reconcile net income to net cash provided by operations:
Depreciation Expense	$1,560.00
Increase in accounts receivables ($24,167 - $5,168)	-$18,999.00
Increase in inventory ($614 -0)	-$614.00
Increase in computer supplies ($2,085 - $510)	-$1,575.00
Decrease in prepaid insurance ($1,655 - $1,060)	$595.00
Decrease in accounts payable ($1,120 - 0)	-$1,120.00
Increase in wages payable ($895 - $530)	$365.00
Decrease in unearned computer service revenue ($1,500 - 0)	-$1,500.00
Net Cash provided (Used In) by operating activities		-$2,845.00
Cash Flow from Investing Activities:		$0.00
Cash Flow from Financing Activities:
Dividend Paid	-$3,900.00
Proceed from issue of common stock	$27,000.00
Net Cash Provided by financing activities		$23,100.00
Net Increase / (Decrease) in Cash		$20,255.00
Cash balance at beginning of year		$54,312.00
Cash balance at end of year		$74,567.00