The following transactions occurred during March 2016 for the Wainwright Corpora

Question

The following transactions occurred during March 2016 for the Wainwright Corporation. The company owns

and operates a wholesale warehouse.

Purchased equipment at a cost of $58,000. $19,000 cash was paid and a note payable was signed for the balance owed.

Purchased inventory on account at a cost of $108,000. The company uses the perpetual inventory system.

Credit sales for the month totaled $129,000. The cost of the goods sold was $79,000.

Paid $6,900 to an insurance company for fire and liability insurance for a one-year period beginning April 1, 2016.

2.

Prepare a statement of cash flows, using the direct method to present cash flows from operating activities. Assume the cash balance at the beginning of the month was $49,000. (Amounts to be deducted should be indicated with a minus sign.)

The following transactions occurred during March 2016 for the Wainwright Corporation. The company owns

and operates a wholesale warehouse.

1. Issued 39,000 shares of capital stock in exchange for $390,000 in cash. 2.

Purchased equipment at a cost of $58,000. $19,000 cash was paid and a note payable was signed for the balance owed.

3.

Purchased inventory on account at a cost of $108,000. The company uses the perpetual inventory system.

4.

Credit sales for the month totaled $129,000. The cost of the goods sold was $79,000.

5. Paid $5,900 in rent on the warehouse building for the month of March. 6.

Paid $6,900 to an insurance company for fire and liability insurance for a one-year period beginning April 1, 2016.

7. Paid $79,000 on account for the merchandise purchased in 3. 8. Collected $64,000 from customers on account. 9. Recorded depreciation expense of $1,900 for the month on the equipment

2.

Prepare a statement of cash flows, using the direct method to present cash flows from operating activities. Assume the cash balance at the beginning of the month was $49,000. (Amounts to be deducted should be indicated with a minus sign.)

Explanation / Answer

Direct method cash flow from operating activity Amount Cash sales from customer ( sales +beg acc reivable - closing) 64000 cash paid to supplier (purchase+ ending - beginninginventory + beg Acc payable - ending) -79000 cash generated from operatrion -15000 cash payment for purchase of prepaid -5900 cash insurance 1 month = 6900/12 = -575 Income tax paid 0 net cash flow from operating activity -21475 Cash flow from investing activity Purchase of fixed asset -19000 Sale of asset 0 interest received 0 Dividend received 0 Cash flow from investing activity -19000 Cash flow from financing activity issue of share capital 390000 proceed from long term borrowings 0 repayment 0 interest paid 0 dividend paid 0 Cash flow from financing activity 390000 opening cash balance 49000 Net increase Decrease of cash flow during the year 349525 Net closing balance 398525

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