Question

On October 1, Ebony Ernst organized Ernst Consulting; on October 3, the owner contributed $83,220 in assets in exchange for its common stock to launch the business. On October 31, the company's records show the following items and amounts.
Cash $13,840
Accounts receivable 12,000
Office supplies 2530
Land 45,840
Office equipment 17,200
Accounts payable 7810
Common Stock 83,220

Cash dividends $1280
Consulting revenue 12,000
Rent expense 2770
Salaries expense 6120
Telephone expense 820
Miscellaneous expenses 630

Required:
Prepare an October income statement for the business.

a. The ownerâs initial investment consists of $37,380 cash and $45,840 in land in exchange for its common stock.
b. The companyâs $17,200 equipment purchase is paid in cash.
c. The accounts payable balance of $7,810 consists of the $2,530 office supplies purchase and $5,280 in employee salaries yet to be paid.
d. The companyâs rent, telephone, and miscellaneous expenses are paid in cash.
e. No cash has been collected on the $12,000 consulting fees earned.

Required:
Prepare a statement of cash flows for Ernst Consulting.

Answer 1

Answer and Explanation:

The Preparation of statement of cash flows for Ernst Consulting is shown below:-

Ernst Consulting

Cash Flows from Operating Activities

Particulars                                                                          Amount

Paid cash to employees                          ($840)

Paid cash for rent                                     ($2,770)

Paid cash for telephone expense            ($820)

Paid cash for miscellaneous expenses    ($630)

Net cash used in Operating Activities                            ($5,060 )

Cash Flows from Investing Activities  

Paid cash for purchase of equipment      ($17,200)

Net cash used in Investing Activities                             ($17,200 )

Cash Flows from Financing Activities

Cash invested by owner                            $37,380  

Cash dividends                                           ($1,280)  

Net cash flows provided by Financing Activities          $36,100

Net increase ( decrease) in cash                                       $13,840

Cash balance, October 1                                                       0

Cash balance, October 31                                                   $13,840

Therefore we have considered cash inflow presented in positive amount

while cash outflow in negative amount.