Question

Abby Perry recently opened her own law office on December 1, which she operates as a corporation. The name of the new entity is Abby Perry, Attorney. Perry experienced the following events during the organizing phase of the new business and its first month of operation, December 2018. Some of the events were personal and did not affect the law practice. Others were business transactions and should be accounted for by the business. Dec. 1 Sold personal investment in Nike stock, which she had owned for several years, receiving \(30,000 cash. 2 Deposited the \)30,000 cash from the sale of the Nike stock in her personal bank account. 3 Deposited \(89,000 cash in a new business bank account titled Abby Perry, Attorney. The business issued common stock to Perry. 5 Paid \)600 cash for ink cartridges for the printer. 7 Purchased computer for the law office, agreeing to pay the account, \(8,000, within three months. 9 Received \)2,900 cash from customers for services rendered. 15 Received bill from The Lawyer for magazine subscription, \(300. (Use Miscellaneous Expense account.) 23 Finished court hearings on behalf of a client and submitted a bill for legal services, \)8,000, on account. 28 Paid bill from The Lawyer. 30 Paid utilities, \(900. 31 Received \)2,800 cash from clients billed on Dec. 23. 31 Cash dividends of $3,000 were paid to stockholders. Requirements 1. Analyze the effects of the preceding events on the accounting equation of Abby Perry, Attorney. Use a format similar to Exhibit 1-6. 2. Prepare the following financial statements: a. Income statement. b. Statement of retained earnings. c. Balance sheet. d. Statement of cash flows.

Short answer

The cash flow statement is shown as follows:

Abby Perry, Attorney
Statement of Cash Flows
Month Ended December 31, 2018
Cash flows from operating activities:
Receipts:
Collections from customers (2900+2800)		$5,700
Payments
To miscellaneous expense	$(300)
To utilities	(900)
To office supplies	(600)	(1,800)
Net cash provided by operating activities		3,900
Cash flows from investing activities:
Net cash used by investing activities		0
Cash flows from financing activities:
Issued common stock	89,000
Payment of cash dividend	(3,000)
Net cash provided by financing activities		86,000
Net increase in cash		89,900
Cash balance, December 1, 2018		0
Cash balance, December 31, 2018		$89,900

Step-by-step solution

Step-by-Step SolutionStep 1: Explanation on Statement of Cash Flows

Statement of cash flows reports the fluctuations in the cash balance of the business, by recording all cash transactions for the period.

Statement of cash flows

Cash flow from operating activities equals $3,900, cash flow from investing activities equals $0, cash flow from financing activities equals $86,000 and net increase in cash equals $89,900.