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Q1) The following events happened at Handsome Hounds Grooming Company in its first year of business:

a) To establish company, two owners contributed a total of $50,000 in exchange for common stock.

b) Grooming service revenue for first year amounted to $150,000 of which $40,000 was on account.

c) Customers owe $10,000 at the end of year from services given on account.

d) At the starting of year, a storage building was rented. Company was needed to sign three-year lease for $12,000 per year and make $2,000 refundable security deposit. First year\'s lease payment and security deposit were paid at beginning of the year.

e) At beginning of the year, company bought a patent at cost of $100,000 for revolutionary system to be used for dog grooming. Patent is expected to be useful for 10 years. Company paid 20% down in cash and signed four-year note at bank for remainder.

f) Operating expenses, comprising amortization of patent and rent on storage building, totaled $80,000 for first year. No expenses were accrued or unpaid at the end of year.

g) Company declared and paid a $20,000 cash dividend at the end of first year.

problem:

Create a statement of cash flows for first year, using direct method in operating activities section.

Did company generate more or less cash flow from operations than it earned in net income? Describe why there is a difference.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M920878

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