Question

All-Star Automotive Company experienced the following accounting events during 2018: Performed services for $25,000 cash. Purchased land for $6,000 cash. Hired an accountant to keep the books. Received $50,000 cash from the issue of common stock. Borrowed $5,000 cash from State Bank. Paid $14,000 cash for salary expense. Sold land for $9,000 cash. Paid $10,000 cash on the loan from State Bank. Paid $2,800 cash for utilities expense. Paid a cash dividend of $5,000 to the stockholders. Required Indicate how each of the events would be classified on the statement of cash flows as operating activities (OA), investing activities (IA), financing activities (FA), or not applicable (NA). Prepare a statement of cash flows for 2018. Assume All-Star Automotive Company had a beginning cash balance of $9,000 on January 1, 2018.

Answer 1

Answer &  Explanation:

Operating Activities

services collected 25,000

salaries paid           (14,000)

utilities paid             (2,800)

cash generated from operating activities 8,200

Investing activities

proceeds from land  9,000

purchase of land      (6,000)

cash generated from investing activities 3,000

Financing Activities

issuance of stocks 50,000

bank loan                  5,000

payment on loan    (10,000)

dividends paid         (5,000)

cash generated from financing activities 40,000

Total cash generated for the year ended December 31th, 2018 51,200

beginning balance                                                                            9,200

ending balance                                                                               60,400

Notes: Activities related to the daily operation wil lbe operating activities.

The transaction involving long-term assets will be investing activities

The stocks, dividends and loan, loan payment are financing activities for the company.