ASSIGNMENT INSTRUCTIONS
Prepare a cash flow statement using EITHER the “Direct Method”
of Cash Flows or the “Indirect Method” of Cash Flows. Use the
format found on the last page of this document based upon the
following information and Financial Schedules.
TRANSACTION DETAIL:
1. 2003 is the first year of operations for Tax Consultants
Inc.
2. It adopted the accrual form of accounting.
3. The company issued 90,000 shares of stock at a par value of
$1.00 per share for a total of $90,000 and deposited it in the
company’s checking account. Financing
4. Since the company did not need all $90,000 for operations,
it invested $30,000 in interest bearing investments at 10%.
Investment
5. On December 15, 2003 the company received $3,000 in
interest income for the investments and deposited into its checking
account. Investment
6. It performed tax consulting services throughout the first
year and billed clients every month for its personnel billed time
of $125,000 spent with the client.
7. The billing period was net 30 days and at the end of the
year there was $36,000 still in Accounts Receivable from the
billings.
8. The company paid salary and benefit expenses of $55,000.
The company paid all salary and benefit accruals for the 2003 year
on December 15, 2003 leaving no payables for salary and benefits in
the accounts payable account.
9. Tax Consultants, Inc. signed a contract to rent its office
space and furniture and equipment for $15,000 for the year.
10. The office space and furniture rental agreement also
specified that a $2,000 security deposit be paid upfront. On
January 15, 2003, the company paid its $1,250 rent payment for
January along with the security deposit for a total of
$3,250.
11. The company was billed on the first of the month for the
remainder of the rent and furniture for each of the 11 successive
months at $1,250 per month. The company paid its last monthly rent
payments for the year on December 15, 2003.
12. The company had other operating expenses of $13,000. The
company was billed for expenses throughout the year and paid them
within 30 days of due date. At the end of the year, there was
$5,000 in accounts payable from outstanding invoices unpaid.
13. Income taxes based upon the company’s monthly accruals
totaling $6,000 was paid on December 31, 2003.
14. The company paid is stockholders a dividend of $14,000 on
December 31, 2003 for its first year of operation.