The following transactions occurred during March 2018 for the Wainwright Corpora

Question

The following transactions occurred during March 2018 for the Wainwright Corporation. The company owns and operates a wholesale warehouse.

1) Issued 30,000 shares of capital stock in exchange for $300,000 in cash.

2) Purchased equipment at a cost of $40,000. $10,000 cash was paid and a note payable was signed for the balance owed.

3) Purchased inventory on account at a cost of $90,000. The company uses the perpetual inventory system.

4) Credit sales for the month totaled $120,000. The cost of the goods sold was $70,000.

5) Paid $5,000 in rent on the warehouse building for the month of March.

6) Paid $6,000 to an insurance company for fire and liability insurance for a one-year period beginning April 1, 2018.

7) Paid $70,000 on account for the merchandise purchased in 3.

8) Collected $55,000 from customers on account.

9) Recorded depreciation expense of $1,000 for the month on the equipment.

Required:
1. Analyze each transaction by indicating the cash effect and classify each as a financing, investing, and/or operating activity (a transaction can represent more than one type of activity).
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 $40,000.

Analyze each transaction by indicating the cash effect and classify each as a financing, investing, and/or operating activity (a transaction can represent more than one type of activity). (Amounts to be deducted should be indicated with a minus sign. If there is no cash effect, leave cell blank.)

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 $40,000. (Amounts to be deducted should be indicated with a minus sign.)

Explanation / Answer

A Classification of Activities as Operating, Investing and Financing Amount $ S.No Operating Investing Financing Total Remarks 1       30,000    30,000 Being shares issued is an Financing Activity 2 40,000       30,000    70,000 Being $40000/- was invested in the Plant - Investing & $30000/- was obtained by Note payable - Financing 3          -   Inventory Purchased for $90000 but there is no Cash Out Flow , Hence not considering 4          -   Being $ 120000 Sales was done for Credit but there is no Inflow of Cash , Ignored 5      5,000      5,000 Rent Paid is Operating Expense and Included in Operating Activities 6      6,000      6,000 Insurance Paid is Operating Expense and Included in Operating Activities 7    70,000    70,000 Amount Paid for the Inventory, is an Operating Expense and Included in Operating Activities 8    55,000    55,000 Cash received from Debtor is Operating Activity 9          -   Depreciation is a Non Cash Expense , hence not Considered 136,000 40,000       60,000 236,000 B Statement of Casf Flows for Wainwright Corporation for the Month ended 31st March 2018 Amount $ I Cash Flow From Operating Activities : a Cash Received from Debtors    55,000 b Cash paid to Creditor (Purchases) (70,000) c Operating Expense & Others i. Rent Paid -5000 ii. Insurance Paid -6000 -11000 Total Cash Floe from Operating Activities (26,000) II Cash Flow From Investing Activities : a Purchase of the Plant -40000 Total Cash Flow from Investing Activities -40000 II Cash Flow From Financing Activities : a Amount Obtained from Notes Payable 30000 b Shares Issued for the Cash 30000 Total Cash Flow from Investing Activities 60000 Total Cash Flows for the Month of March    (6,000) Add Opening Cash Balance for the Month March 40000 Closing Cash Balance for the month March    34,000 Note : 1. Non Cash Expense of $1000/- for deprecation exp for the month of March

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