Question

The following transactions occurred during March 2018 for the Wainwright Corporation. The company owns and operates a wholesale warehouse.

1. Issued 49,000 shares of capital stock in exchange for $490,000 in cash.
2. Purchased equipment at a cost of $78,000. $29,000 cash was paid and a note payable was signed for the balance owed.
3. Purchased inventory on account at a cost of $128,000. The company uses the perpetual inventory system.
4. Credit sales for the month totaled $139,000. The cost of the goods sold was $89,000.
5. Paid $6,900 in rent on the warehouse building for the month of March.
6. Paid $7,900 to an insurance company for fire and liability insurance for a one-year period beginning April 1, 2018.
7. Paid $89,000 on account for the merchandise purchased in 3.
8. Collected $74,000 from customers on account.
9. Recorded depreciation expense of $2,900 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 $59,000.

Answer 1

1) Classification

		Activity
1	Issue Common Stock	Financing
2	Purchase equipment	Investing
3	Purchase inventory on account	Non Cash activity
4	Credit Sales	Non Cash activity
5	Rent paid	Operating
6	Insurance	Operating
7	Account payable paid	Operating
8	Collection	Operating
9	Depreciation	Non Cash activity

2) Statement of Cash flow

Cash flow from operating activities
Cash received from customer	74000
Cash paid to supplier	-89000
Cash paid for rent	-6900
Cash paid for insurance	-7900
Net Cash flow from operating activities		-29800
Cash flow from investing activities
Purchase of equipment		-29000
Cash flow from financing activities
Issue Common Stock		490000
Net Cash flow		431200
Beginning Cash		59000
Ending Cash		490200