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College Accounting (Book Only): A ...

13th Edition
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ISBN: 9781337280570

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BuyFindarrow_forward

College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570
Textbook Problem

Mahoney Company has the following financial statements for 2017 and 2018. Assume that the purchase of equipment and the withdrawals were in the form of cash.

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Required

Prepare a statement of cash flows for the year ended December 31, 2018.

Check Figure

Net cash flows from operating activities, $76,800

To determine

Prepare statement of cash flows for Company M for the year ended December 31, 2018.

Explanation

Statement of cash flows: This statement reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is reported as ending balance of cash at the end of reported period. Statement of cash flows includes the changes in cash balance due to operating, investing, and financing activities. Operating activities include cash inflows and outflows from business operations. Investing activities includes cash inflows and cash outflows from purchase and sale of land or equipment, or investments. Financing activities includes cash inflows from borrowings and investment by owners, and outflows from payment of debt and withdrawals by owner for personal use.

Prepare statement of cash flows for Company M for the year ended December 31, 2018.

Company M
Statement of Cash Flows
For the Year Ended December 31, 2018
Cash flows from (used by) operating activities  
 Net income$72,000 

 Add (Deduct) items to convert net income from accrual

 basis to cash basis:

  
 Depreciation expense5,000 
 Increase in supplies(5,500) 
 Increase in accounts payable6,000 
 Decrease in rent payable(700) 
    Net cash flows from operating activities $76,800
Cash flows from (used by) investing activities  
 Purchase of equipment(7,000) 
    Net cash flows used by investing activities (7,000)
Cash flows from (used by) financing activities  
 Cash withdrawals by owner(60,000) 
    Net cash used by financing activities (60,000)
Net increase (decrease) in cash $9,800
Cash balance, January 1, 2018 9,000
Cash balance, December 31, 2018 $18,800

Table (1)

Conclusion

Thus, statement of cash flows for Company M for the year ended December 31, 2018 reports cash balance of $18,800 at December 31, 2018.

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