Question

Santana Rey, owner of Business Solutions, decides to prepare a statement of cash flows for her business using the following financial data.
  

BUSINESS SOLUTIONS
Income Statement
For Three Months Ended March 31, 2018
Computer services revenue				$	24,407
Net sales					18,293
Total revenue					42,700
Cost of goods sold	$	14,952
Depreciation expense—Office equipment		350
Depreciation expense—Computer equipment		1,250
Wages expense		2,250
Insurance expense		505
Rent expense		2,375
Computer supplies expense		1,245
Advertising expense		550
Mileage expense		240
Repairs expense—Computer		940
Total expenses					24,657
Net income				$	18,043

BUSINESS SOLUTIONS
Comparative Balance Sheets
December 31, 2017, and March 31, 2018
	Mar. 31, 2018				Dec. 31, 2017
Assets
Cash	$	83,327			$	56,022
Accounts receivable		23,667				5,368
Inventory		644				0
Computer supplies		2,075				550
Prepaid insurance		1,090				1,615
Prepaid rent		735				735
Total current assets		111,538				64,290
Office equipment		8,000				8,000
Accumulated depreciation—Office equipment		(700	)			(350	)
Computer equipment		19,100				19,100
Accumulated depreciation—Computer equipment		(2,500	)			(1,250	)
Total assets	$	135,438			$	89,790
Liabilities and Equity
Accounts payable	$	0			$	1,120
Wages payable		935				510
Unearned computer service revenue		0				1,700
Total current liabilities		935				3,330
Equity
Common stock		113,000				79,000
Retained earnings		21,503				7,460
Total liabilities and equity	$	135,438			$	89,790

  
Required:
Prepare a statement of cash flows for Business Solutions using the indirect method for the three months ended March 31, 2018. Owner Santana Rey contributed $34,000 to the business in exchange for additional stock in the first quarter of 2018 and has received $4,000 in cash dividends. (Amounts to be deducted should be indicated with a minus sign.)
  

Answer 1

Statement of cash flows

Particulars	$	$
Cash flow from Operating Activities
Net income	18,043
Add: Adjustments to reconcile net income to net cash provided by operating activities
Depreciation expense—Office equipment	350
Depreciation expense—Computer equipment	1,250
Accounts receivable	- 18,299
Inventory	- 644
Computer supplies	- 1,525
Prepaid insurance	525
Accounts payable	- 1,120
Unearned computer service revenue	- 1,700
Wages payable	425
Net cash used in Operating Activities		- 2,695
Cash flow from Investing Activities
Net cash provided by Investing Activities		0
Cash flow from Financing Activities
Issue of common stock	34,000
Dividend paid	- 4,000
Net cash provided by Financing Activities		30,000
Net increase in Cash and Cash Equivalents(I +II +III)		27,305
Add: Cash in the beginning of the period		56,022
Cash at the end of the period		83,327

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