Question

Larry Bar opened a frame shop and completed these transactions: 1. Larry started the shop by investing $40,000 cash and equipment valued at $18,000 in exchange for common stock. 2. Purchased $70 of office supplies on credit. 3. Paid $1,200 cash for the receptionist's salary. 4. Sold a custom frame service and collected $1,500 cash on the sale. 5. Completed framing services and billed the client $200. What was the balance of the cash account after these transactions were posted?

Answer 1

Answer:

($39,700)

Explanation:

Cash outflows:

($40,000) exchanged for common stock.

($1,200) used to pay salaries.

Cash inflows:

$1,500 received from a sale

So we have  a negative 41,200 representing cash outflows, and only $1,500 in cash inflows (we are not told if the $200 billed were already received so I will leave them out). Making a simple arithmetic operation, we obtain the answer:

Cash balance = -$41,200 + $1,500

                       = -$39,700