Question :

The subsequent transactions occurred through March 2013 for the Wainwright Corporation. The company owns and operates a wholesale warehouse.

1. Issued 30,000 shares of capital stock in exchange for $300,000 in cash.

2. Purchased equipment at a cost of $40,000. $10,000 cash was paid and a note payable was signed for the balance owed.

3. Purchased inventory on account at a cost of $90,000. The corporation uses the perpetual inventory system.

4. Credit sales for the month totaled $120,000. The cost of the goods sold was $70,000.

5. Paid $5,000 in rent on the warehouse building for the month of March.

6. Paid $6,000 to an insurance company for liability and fire insurance for a one-year period starting April 1, 2013.

7. Paid $70,000 on account for the merchandise purchased in 3.

8. Collected $55,000 from customers on account.

9. Recorded depreciation expense of $1,000 for the month on the equipment.

Required:

1. Examine each transaction and categorize each as a financing, investing and/or operating activity (a transaction will represent more than one type of activity). In doing so, also show the cash effect of each.

2. Purpose a statement of cash flows, using the direct method to show cash flows from operating activities. Consider the cash balance at the starting of the month was $40,000.