Question

ASSIGNMENT INSTRUCTIONS Prepare a cash flow statement using EITHER the “Direct Method” of Cash Flows or...

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.

Homework Answers

Answer #1
Tax Consultants Inc.
Statement of Cash Flows
For the year ended December 31, 2003
Cash Flows from Operating Activities $ $
Cash received from clients 89,000
Cash paid for salary and benefits (55,000)
Cash paid for rent and security deposit (17,000)
Cash paid for other operating expenses (8,000)
Cash paid for Income Taxes (6,000) (86,000)
Net cash flows from Operating Activities 3,000
Cash Flows from Investing Activities
Cash paid for investments (30,000)
Interest income received 3,000
Net cash used in Investing Activities (27,000)
Cash Flows from Financing Activities
Cash from issuance of common stock 90,000
Cash dividends paid (14,000)
Net cash flows from Financing Activities 76,000
Net increase ( decrease ) in cash 52,000
Cash balance, January 1, 2003 0
Cash balance, December 31, 2003 52,000
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