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Horngren'S Financial And Managerial Accounting
Found in: Page 758

Short Answer

Question: Big Island, Inc. began 2018 with cash of $40,000. During the year, Big Island earned revenue of $200,000 and collected $120,000 from customers. Expenses for the year totaled $160,000, of which Big Island paid $65,000 in cash to suppliers and $80,000 in cash to employees. The company received $2,000 cash for interest revenue and paid $10,000 for income taxes. Big Island also paid $35,000 to purchase equipment and a cash dividend of $15,000 to its stockholders during 2018. Prepare the company’s operating activities section of the statement of cash flows for the year ended December 31, 2018. Use the direct method.

Answer

Net Cash used by operating activities is ($33,000)

See the step by step solution

Step by Step Solution

Step 1: Cash flow from operating activities 

Cash paid to purchase equipment is an investing activity and dividend paid to stockholders is a financing activity.

Step 2: Statement showing cash flow from operating activities

Particulars

Amount ($)

Amount($)

Cash Flows from Operating Activities

Receipts:

Collection from customers

120,000

Interest revenue

2,000

122,000

Payments:

To suppliers

(65,000)

To Employees

(80,000)

For Income tax

(10,000)

(155,000)

Net cash used by operating activities

(33,000)

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