In: Accounting
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 | $ | 25,107 | ||||
Net sales | 18,293 | |||||
Total revenue | 43,400 | |||||
Cost of goods sold | $ | 14,752 | ||||
Depreciation expense—Office equipment | 340 | |||||
Depreciation expense—Computer equipment | 1,220 | |||||
Wages expense | 2,250 | |||||
Insurance expense | 545 | |||||
Rent expense | 1,675 | |||||
Computer supplies expense | 1,285 | |||||
Advertising expense | 600 | |||||
Mileage expense | 230 | |||||
Repairs expense—Computer | 860 | |||||
Total expenses | 23,757 | |||||
Net income | $ | 19,643 | ||||
BUSINESS SOLUTIONS | |||||||||||
Comparative Balance Sheets | |||||||||||
December 31, 2019, and March 31, 2020 | |||||||||||
Mar. 31, 2020 | Dec. 31, 2019 | ||||||||||
Assets | |||||||||||
Cash | $ | 83,327 | $ | 58,062 | |||||||
Accounts receivable | 24,267 | 5,568 | |||||||||
Inventory | 614 | 0 | |||||||||
Computer supplies | 2,035 | 490 | |||||||||
Prepaid insurance | 1,070 | 1,615 | |||||||||
Prepaid rent | 755 | 755 | |||||||||
Total current assets | 112,068 | 66,490 | |||||||||
Office equipment | 7,900 | 7,900 | |||||||||
Accumulated depreciation—Office equipment | (680 | ) | (340 | ) | |||||||
Computer equipment | 19,800 | 19,800 | |||||||||
Accumulated depreciation—Computer equipment | (2,440 | ) | (1,220 | ) | |||||||
Total assets | $ | 136,648 | $ | 92,630 | |||||||
Liabilities and Equity | |||||||||||
Accounts payable | $ | 0 | $ | 1,180 | |||||||
Wages payable | 945 | 590 | |||||||||
Unearned computer service revenue | 0 | 1,800 | |||||||||
Total current liabilities | 945 | 3,570 | |||||||||
Equity | |||||||||||
Common stock | 112,000 | 81,000 | |||||||||
Retained earnings | 23,703 | 8,060 | |||||||||
Total liabilities and equity | $ | 136,648 | $ | 92,630 | |||||||
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 $31,000 to the business in exchange
for additional stock in the first quarter of 2020 and has received
$4,000 in cash dividends. (Amounts to be deducted should be
indicated with a minus sign.)
Solution
BUSINESS SOLUTIONS | ||
Statement of Cash Flows | ||
For year Ended December 31 2020 | ||
A. Cash Flows from Operating Activity | ||
Net Income | $ 19,643.00 | |
Adjustments to reconcile net income to net cash flow from operating activities: | ||
Depreciation expense | $ 1,560.00 | |
Changes in current operating assets and liabilities: | ||
Increase in accounts receivable | $ (18,699.00) | |
Decrease in Accounts Payable | $ (1,180.00) | |
Decrease in Inventory | $ (614.00) | |
Increase in computer supplies | $ (1,545.00) | |
Decrease in prepaid insurance | $ 545.00 | |
Increase in wages payable | $ 355.00 | |
Decrease in Unearned computer service revenue | $ (1,800.00) | |
$ (21,378.00) | ||
Net cash flow from Operating activities | $ (1,735.00) | |
B. Cash flows from Investing Activities | ||
Net Cash flows from Investing activities | $ - | |
C. Cash Flows from Financing activities | ||
Issue of Common stock | $ 31,000.00 | |
Dividends paid | $ (4,000.00) | |
Cash flows from Financing activities | $ 27,000.00 | |
Net Increase (Decrease) in Cash [A+B+C] | $ 25,265.00 | |
Cash at the beginning | $ 58,062.00 | |
Cash at the end | $ 83,327.00 |
.General notes for cash flow
Cash is increased when Current liability increase or Current asset
Decrease.
Cash is Decreased when Current liability Decrease or Current asset
Increase.
Depreciation or loss on sale of any asset is a non cash expense
hence it will be added to net income to get operating cash
Profit on sale of asset or investment is a non cash profit and
hence will be deducted from operating income.