Question

Dive In Company was started several years ago by two diving instructors. The company’s comparative balance...

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.)

Homework Answers

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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