Question

The following transactions occurred during March 2021 for the Wainwright Corporation. The company owns and operates a wholesale warehouse. 1. Issued 41,000 shares of common stock in exchange for $410,000 in cash. 2. Purchased equipment at a cost of $62,000. $21,000 cash was paid and a note payable to the seller was signed for the balance owed. 3. Purchased inventory on account at a cost of $112,000. The company uses the perpetual inventory system. 4. Credit sales for the month totaled $131,000. The cost of the goods sold was $81,000. 5. Paid $6,100 in rent on the warehouse building for the month of March. 6. Paid $7,100 to an insurance company for fire and liability insurance for a one-year period beginning April 1, 2021. 7. Paid $81,000 on account for the merchandise purchased in 3. 8. Collected $66,000 from customers on account. 9. Recorded depreciation expense of $2,100 for the month on the equipment. Required: 1. Analyze each transaction by indicating the cash effect and classify each as a financing, investing, and/or operating activity (a transaction can represent more than one type of activity). 2. Prepare a statement of cash flows, using the direct method to present cash flows from operating activities. Assume the cash balance at the beginning of the month was $51,000.

Answer 1

1) Classification

1	Financing activities
2	investing activities
3	No effect
4	No effect
5	Operating activities
6	Operating activities
7	Operating activities
8	Operating activities
9	No effect

2) Statement of Cash flow

Cash flow from operating activities
Cash received from customer	66000
Cash paid for supplier	-81000
Cash paid for rent	-6100
Cash paid for insurance	-7100
Net cash used in operating activities		-28200
Cash flow from investing activities
Purchase equipment		-21000
Cash flow from financing activities
Issue common Stock		410000
Net cash increase (decrease)		360800
Beginning Cash		51000
Ending cash		411800