Question

On October 1, Natalie King organized Real Solutions, a new consulting firm. On October 31, the company's records show the following items and amounts.
Cash $2,000 Cash dividends $3,360
Accounts receivable 13,000 Consulting fees earned 15,000
Office supplies 4,250 Rent expense 2,550
Land 36,000 Salaries expense 6,000
Office equipment 28,000 Telephone expense 660
Accounts payable 7,500 Miscellaneous expenses 680
Common stock 74,000


Also assume the following:

a. The owner’s initial investment consists of $37,720 cash and $45,940 in land in exchange for its common stock.
b. The company’s $17,710 equipment purchase is paid in cash.
c. The accounts payable balance of $8,230 consists of the $2,990 office supplies purchase and $5,240 in employee salaries yet to be paid.
d. The company’s rent, telephone, and miscellaneous expenses are paid in cash.
e. No cash has been collected on the $13,800 consulting fees earned.

Required:
Using the above information to prepare an October 31 statement of cash flows for Real Solutions.

Answer 1

Answer:

Statement of cash flows for Real Solutions for the year ended October 31 .

Cash flow from Operating Activities

Net Profit                                                                             $14,660

Adjustment for Changes in Working Capital :

Increase in Accounts receivable                                     ($13,000)

Increase in Accounts Payable                                            $7,500

Net Cash from Operating Activities                                    $9,160

Cash flow from Investing Activities

Purchase of Equipment                                                     ($17,710)

Net Cash from Investing Activities                                    ($17,710)

Cash flow from Financing Activities

Cash dividends                                                                  ($3,360)

Net Cash from Financing Activities                                  ($3,360)

Movement during the Period                                            ($11,910)

Cash and Cash Equivalents at Beginning of the year     $37,720

Cash and Cash Equivalents at End of the year                $25,810

Explanation:

The Indirect Method has been used for the Preparation of Cash flow from  Operating Activities. (opt for this as it is easier to deal with the information given).

Calculation of Net Income for the Year Ended October 31

Revenue :

Consulting fees earned                                15,000

Consulting fees accrued                               13,800

Total Revenue                                               28,800

Less Expenses ;

Office supplies                             4,250

Rent expense                               2,550

Salaries expense                         6,000

Telephone expense                       660

Miscellaneous expenses                680       (14,140)

Net Income                                                    14,660