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Cornerstones of Financial Accounti...

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Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Brief Exercise 1-23 Business Activities

Marni Restaurant Company engaged in the following transactions during March, its first month of operations.

  1. Received $100,000 cash from the sale of stock.
  2. Purchased of $20,000 inventory from J&J Wholesale Company.
  3. Purchased $30,000 of kitchen equipment for its restaurants.
  4. Obtained a $25,000 loan from First State Bank.
  5. Sold $18,000 of food to customers.
  6. paid employee weekly salaries of $8,500.
  7. Repaid S 10,000 of principal relating to the loan in Item d.

Required:

For each of the above business activities, indicate whether it is an operating, investing, or financing activity.

To determine

Concept Introduction:

Financial statements: Financial statements are prepared to summaries the account at the end of the period. The statements prepared are Income statement, Balance sheet, Statement of owner’s equity and Cash flows statements.

Cash Flow statement:

The Cash flow statement shows the movement of cash during a particular period. The Cash flows are categorized into three categories as follows:

  • Cash flows from operating activities.
  • Cash Flows from investing activities.
  • Cash flows from financing activities.

To Indicate:

The type of the activity for each of the given transactions.

Explanation

Financial statements are prepared to summaries the account at the end of the period. The statements prepared are Income statement, Balance sheet, Statement of owner’s equity and Cash flows statements. The Cash flow statement shows the movement of cash during a particular period. The Cash flows are categorized into three categories as follows:

  • Operating Activities: Operating Activities are day to day business transactions, for example sales purchase etc.
  • Investing Activities: Investing Activities belong to the sale or purchase of assets or investments of a business. For example sales of fixed assets etc, purchase of investments.
  • Financing Activities: Financing Activities includes the transactions related to raising business finds through equity or debts. For example, issuance of shares and payment of dividend to shareholders.

The type of the activity for each of the given transactions is explained as follows:

    Transaction Type of activity
    a...

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