Question

Required information Use the following information for exercises 15 to 18 LO P2 [The following information applies to the questions displayed below.] On October 1, Ebony Ernst organized Ernst Consulting; on October 3, the owner contributed $83,220 in assets in exchange for its common stock to launch the business. On October 31, the company's records show the following items and amounts. $ 1,280 12,000 2,770 6,120 820 630 Cash Accounts receivable Office supplies Land Office equipment Accounts payable Common Stock Cash dividends Consulting revenue Rent expense Salaries expense Telephone expense Miscellaneous expenses $13,840 12,000 2,530 45,840 17,200 7,810 83,220

Answer 1

Cash flow statement:

ERNST CONSULTING
Statement of Cash Flows (indirect method)
For Month Ended October 31
Cash flows from operating activities:
Net income (see calculations)	$1,660
Adjustments:
Increase in accounts receivable	($12,000)
Increase in office supplies	($2,530)
Increase in accounts payable	$7,810
Net cash flows from operating activities (i)		($5,060)
Cash flows from investing activities:
Purchase of land	($45,840)
Purchase of equipment	($17,200)
Net cash flows from investing activities (ii)		($63,040)
Cash flows from financing activities:
Issuance of common stock	$83,220
Payment of cash dividends	($1,280)
Net cash flows from financing activities (iii)		$81,940
Net increase(decrease) in cash (i+ii+iii)		$13,840
Cash balance, October 1		$0
Cash balance, October 31		$13,840

Balance Sheet:

ERNST CONSULTING
Balance Sheet
As of October 31
Assets		Liabilities
Cash	$13,840	Accounts payable	$7,810
Accounts receivable	$12,000
Office supplies	$2,530	Equity
Land	$45,840	Common stock	$83,220
Office equipment	$17,200	Retained Earnings (see calculations)	$380
Total assets	$91,410	Total liabilities and stockholder's equity	$91,410

Calculations:

Income statement
Consulting revenues		$12,000
Expenses:
Rent expense	$2,770
Salaries expense	$6,120
Telephone expense	$820
Miscellaneous expense	$630
Total expenses		$10,340
Net income		$1,660

Retained earnings = Net income - Dividends = $1,660 - $1,280 = $380