Question

Dive In Company was started several years ago by two diving instructors. The company’s comparative balance sheets and income statement are presented below.

	Current Year			Previous Year
Balance Sheet at December 31
Cash	$	4,180		$	5,015
Accounts Receivable		1,700			850
Prepaid Expenses		170			85
	$	6,050		$	5,950
Salaries and Wages Payable	$	700		$	1,800
Common Stock		1,900			1,350
Retained Earnings		3,450			2,800
	$	6,050		$	5,950
Income Statement
Service Revenue	$	41,650
Salaries and Wages Expense		37,000
Other Operating Expenses		4,000
Net Income	$	650

Additional Data:

a.	Prepaid Expenses relate to rent paid in advance.
b.	Other Operating Expenses were paid in cash.
c.	An owner contributed capital by paying $550 cash in exchange for the company’s stock.

Required:

1.	Prepare the statement of cash flows for the current year ended December 31 using the DIRECT method. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

Computation of Cash Flow from Operating Activities
	Working	$
Service Revenue		41650.00
Operating Expenses		-4000.00
Salaries and Wages Expenes	37000 - 700 + 1800	-38100.00
Operating Profit befor Working Capital Changes		-450.00
Increase in Accounts Recievable	1700 - 850	-850.00
Increase in Prepaid Expenses	170 - 85	-85.00
Increase in Common Stock*	1900 - 1350 + 550	-1100.00
Cash Flow From Operating Activities		-2485.00

*550 is added (contributed capital in exchange of stock) along with the increase in Common stock because, that stock was purchased by cash of $550 which will be an operating expense)

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