Question

Santana Rey, owner of Business Solutions, decides to prepare a statement of cash flows for her business. (Although the serial problem allowed for various ownership changes in earlier chapters, we will prepare the statement of cash flows using the following financial data.)

BUSINESS SOLUTIONS Income Statement For Three Months Ended March 31, 2018

Particular	Amount \(	Amount \)
Computer service revenue		\(25,307
Net sales		18,693
Total revenue		44,000
Cost of goods sold	\)14,052
Depreciation expenses – Office equipment	400
Depreciation expenses – Computer equipment	1,250
Wages expenses	3,250
Insurance expenses	555
Rent expenses	2,475
Computer supplies expenses	1,305
Advertising expenses	600
Mileage expenses	320
Repair expenses – computer	960
Total expenses		25,167
Net income		\(18,833

BUSINESS SOLUTIONS Comparative Balance Sheets December 31, 2017, and March 31, 2018

March 31, 2018

Dec 31, 2017

Cash	\)68,057	\(48,372
Accounts receivables	22,867	5,668
Inventory	704	0
Computer supplies	2,005	580
Prepaid insurance	1,110	1,665
Prepaid rent	825	825
Total current assets	95,568	95,568
Office equipment	8,000	8,000
Accumulated depreciation – office equipment	(800)	(400)
Computer equipment	20,000	20,000
Accumulated depreciation – computer equipment	(2,500)	(1,250)
Total assets	\)120,268	\(120,268
Liability and equity
Account payable	\)0	\(1,100
Wages payable	875	500
Unearned computer service revenue	0	1,500
Total current liabilities	875	3,100
Equity
Common stock	98,000	73,000
Retained earnings	21,393	7,360
Total liabilities and equity	\)120,268	\(83,460

Required

Prepare a statement of cash flows for Business Solutions using the indirect method for the three months ended March 31, 2018. Recall that owner Santana Rey contributed \)25,000 to the business in exchange for additional stock in the first quarter of 2018 and has received $4,800 in cash dividends.

Short answer

Cash flow from operating activities totals ($515).

Step-by-step solution

Definition of Cash Flow from Operation

Cash flow from operation refers to that part of cash flow statements that deals with cash inflow and outflow related to the business's routine activities.

Statement of cash flow using the indirect method

Particular	Amount $	Amount $
Net income		$18,833
Add/Less: Adjustments to net income
Depreciation - office equipment	400
Depreciation - computer equipment	1,250	1,650
Add/Less: Change in current assets and liabilities
Increase in accounts receivables	(17,199)
Increase in inventory	(704)
Increase in computer supplies	(1,425)
Decrease in prepaid insurance	555
Decrease in accounts payable	(1,100)
Increase in wages payable	375
Decrease in unearned computer service revenue	(1,500)	(20,998)
Cash flow use in operating activities		($515)
Cash flow from investing activities		$0
Cash flow from financing activities
Common stock issued	25,000
Cash dividend paid	(4,800)	$20,200
Net changes in cash		$19,685
Add: beginning cash balance		48,372
Ending cash balance		$68,057