The following transactions occurred during March 2018 for the Wainwright Corporation. The company owns and operates a wholesale warehouse. Issued 30,000 shares of capital stock in exchange for $300,000 in cash. Purchased equipment at a cost of $40,000. $10,000 cash was paid and a note payable was signed for the balance owed. Purchased inventory on account at a cost of $90,000. The company uses the perpetual inventory system. Credit sales for the month totaled $120,000. The cost of the goods sold was $70,000. Paid $5,000 in rent on the warehouse building for the month of March. Paid $6,000 to an insurance company for fire and liability insurance for a one-year period beginning April 1, 2018. Paid $70,000 on account for the merchandise purchased in 3. Collected $55,000 from customers on account. Recorded depreciation expense of $1,000 for the month on the equipment. Required:1. Analyze each transaction by indicating the cash effect and classify each as a financing, investing, and/or operating activity (a transaction can represent more than one type of activity).2. Prepare a statement of cash flows, using the direct method to present cash flows from operating activities. Assume the cash balance at the beginning of the month was $40,000.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The following transactions occurred during March 2018 for the Wainwright Corporation. The company owns and operates a wholesale warehouse.

Issued 30,000 shares of capital stock in exchange for $300,000 in cash.
Purchased equipment at a cost of $40,000. $10,000 cash was paid and a note payable was signed for the balance owed.
Purchased inventory on account at a cost of $90,000. The company uses the perpetual inventory system.
Credit sales for the month totaled $120,000. The cost of the goods sold was $70,000.
Paid $5,000 in rent on the warehouse building for the month of March.
Paid $6,000 to an insurance company for fire and liability insurance for a one-year period beginning April 1, 2018.
Paid $70,000 on account for the merchandise purchased in 3.
Collected $55,000 from customers on account.
Recorded depreciation expense of $1,000 for the month on the equipment.

Required:
1. Analyze each transaction by indicating the cash effect and classify each as a financing, investing, and/or operating activity (a transaction can represent more than one type of activity).
2. Prepare a statement of cash flows, using the direct method to present cash flows from operating activities. Assume the cash balance at the beginning of the month was $40,000.

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