Concept explainers
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.
Required
Prepare a statement of cash flows for the year ended December 31, 2018.
Check Figure
Net cash flows from operating activities, $76,800
Prepare statement of cash flows for Company M for the year ended December 31, 2018.
Explanation of Solution
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 expense | 5,000 | |
Increase in supplies | (5,500) | |
Increase in accounts payable | 6,000 | |
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)
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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