Prepare a statement of cash flows

All-Star Automotive Company experienced the following accounting events during Year 1:

Performed services for $14,200 cash. Purchased land for $7,200 cash. Hired an accountant to keep the books. Received $32,000 cash from the issue of common stock. Borrowed $8,400 cash from State Bank. Paid $4,200 cash for salary expense. Sold land for $8,400 cash. Paid $3,200 cash on the loan from State Bank. Paid $4,400 cash for utilities expense. Paid a cash dividend of $1,200 to the stockholders.

Required

a. 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).

b. Prepare a statement of cash flows. Assume All-Star Automotive had a beginning cash balance of $9,200.

Question

Business

Karson

27 August, 15:45

Prepare a statement of cash flows

All-Star Automotive Company experienced the following accounting events during Year 1:

Performed services for $14,200 cash. Purchased land for $7,200 cash. Hired an accountant to keep the books. Received $32,000 cash from the issue of common stock. Borrowed $8,400 cash from State Bank. Paid $4,200 cash for salary expense. Sold land for $8,400 cash. Paid $3,200 cash on the loan from State Bank. Paid $4,400 cash for utilities expense. Paid a cash dividend of $1,200 to the stockholders.

Required

a. 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).

b. Prepare a statement of cash flows. Assume All-Star Automotive had a beginning cash balance of $9,200.

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Answers (1)

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Damion · Answer 1

a. The categorization is shown below:

Performed services for $14,200 cash = operating activities (OA)

Purchased land for $7,200 cash. investing activities (IA)

Hired an accountant to keep the books. = not applicable (NA)

Received $32,000 cash from the issue of common stock. = financing activities (FA)

Borrowed $8,400 cash from State Bank. = financing activities (FA)

Paid $4,200 cash for salary expense. = operating activities (OA)

Sold land for $8,400 cash. investing activities (IA)

Paid $3,200 cash on the loan from State Bank. = financing activities (FA)

Paid $4,400 cash for utilities expense. = operating activities (OA)

Paid a cash dividend of $1,200 to the stockholders. = financing activities (FA)

b. The preparation of the Cash Flows from three Activities is presented below:

Cash flow from Operating activities

Performed services for cash $14,200

Less: paid cash for salary expenses - $4,200

Less: paid cash for utilities expenses - $4,400

Net Cash flow provided by Operating activities $5,600

Cash flow from Investing activities

Purchase of land for cash - $7,200

Sale of land for cash $8,400

Net Cash flow provided by Investing activities $1,200

Cash flow from Financing activities

Cash receipt from the issuance of common stock $32,000

Cash borrowed from state bank $8,400

Les: cash paid on the loan from state bank - $4,400

Less: cash dividend paid - $1,200

Net Cash flow provided by Financing activities $34,800

Net Cash flow provided by Operating activities $5,600

Net Cash flow provided by Investing activities $1,200

Net Cash flow provided by Financing activities $34,800

Add: Beginning cash balance $9,200

Ending cash balance $50,800