Answered Essay: An inexperienced accountant for Prestwick Company prepared the following income statement for the

An inexperienced accountant for Prestwick Company prepared the following income statement for the month of August 2015:
PRESTWICK COMPANY
AUGUST 31, 2015
  Revenues:
       Services provided to customers $ 17,000
       Investment by stockholders 5,000
       Loan from bank 15,000 $ 37,000
  Expenses:
       Payments to long-term creditors $ 11,700
       Expenses required to provide services to customers 7,800
       Purchase of land 16,000 35,500
  Net income $ 1,500
Based on the information prepare a statement of cash flows in a form consistent with generally accepted accounting principles. You may assume all transactions were in cash and that the beginning cash balance was $7,200. (List any deduction in cash and cash outflows as negative amounts.)

Expert Answer

 

Ans.

A. Cash flow from operating activities :

Service provided to customers – 17000

expenses required to provide services to provide service to the customer – (7800)

Net cash flow from operation (A) – 9200

B.Cash flow from investing activity :

Purchase of land – (16000)

Net cash flow from investing activity(B) – (16000)

C. Cash flow from financing activity :

Investment by stockholders – 5000

Loan from bank – 15000

Payment to long-term creditor – (11700)

Net cash flow from financing activity (C) – 8300

Beginning cash balance – 7200

Net cash inflow (A+B+C) – 1500

Closing cash balance – 8700

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