Question

Starting a Company

(1) Issues 50,000 shares of $10 par value common stock at par value for cash.

(2) Acquires land and building costing $225,000 with the payment of $50,000 cash and the assumption of a 20-year, 8-percent mortgage for the balance.

(3) Purchases a used crane for $13,200 cash

(4) Acquires raw materials costing $8,600 on account.

(5) Returns defective raw materials purchased in (4) and costing $900 to the supplier. The account has not yet been paid.

(6) Pays the supplier in (4) and (5) the amount due, less a 2-percent discount for prompt payment. The firm treats cash discount as a reduction in the acquisition cost of raw materials.

(7) Obtains a fire insurance policy providing $500,000 coverage beginning next month. It pays the 1-year premium of $4,950.

(8) Issues a check for $1,800 for 3 months rent in advance for office space.

(9) Purchases a patent on a machine process for $90,000 cash.

(10) Purchases office equipment for $2,700, making a down payment of $250 and agreeing to pay the balance in 30 days.

(11) Pays $825 to Express Trucking Company for delivering the equipment purchased in (3).

Directions:

Prepare the following analysis table.

	Cash	+	Other CA	+	PP&E	+	Other NCA	=	CL	+	NCA	+	CC	+	RE
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
FYE

Prepare the following cash flow statement (a direct form).

Cash Flow Statement

            Operating Cash Flows:                                                  ______________

            Investing Cash Flows:                                                   _______________

            Financing Cash Flows:                                                   ________________

Answer 1

	Cash +	Other CA +	PP&E +	Other NCA =	CL +	NCA+	CC+	RE
1	50000						50000
2	-50000		225000			175000
3	-13200		13200
4		8600			8600
5		-900			-900
6	-7546	-154			-7700
7	-4950							-4950
8	-1800	1800
9	-90000			90000
10	-250		2700		2450
11	-825		825
Total	-118571	9346	241725	90000	2450	175000	50000	-4950
				222500	222500

Cash flow statement
Direct Method
Operating activities
Cash received from customers	0
Less:Cash payments to suppliers	-7546
Less: Prepaid Insurance	-4950
Less: Prepaid Rent	-1800
Cash used in Operating Activities		-14296
Operating activities
Investing activities:
Purchase of crane	-13200
Cash payment for Land & Bldg.	-50000
Purchase of patent	-90000
Cash Purchase of equipment(2450+825)	-1075
Cash used in Investing Activities		-154275
Financing activities:
Issue of common stock	50000
Cash generated from financing activitites		50000
Net cash used		-118571