Question

Prepare a statement of cash flows LO 1-8 All-Star Automotive Company experienced the following accounting events during Year 1:

1. Performed services for $15,600 cash
2. Purchased land for $8,600 cash.
3. Hired an accountant to keep the books.
4. Received $46,000 cash from the issue of common stock.
5. Borrowed $11,200 cash from State Bank.
6. Paid $5,600 cash for salary expense.
7. Sold land for $11,200 cash.
8. Paid $4,600 cash on the loan from State Bank.
9. Paid $5,800 cash for utilities expense.
10. Paid a cash dividend of $2,600 to the stockholdersRequired

Answer 1

A statement of cash flows shows the cash inflows and outflows of a company during a specific period. The statement for All-Star Automotive in Year 1 indicates a net increase in cash of $57,000.

Step-by-step explanation:

A statement of cash flows is a financial statement that shows the cash inflows and outflows of a company during a specific period of time. It provides information about the cash generated from operating activities, investing activities, and financing activities.

Based on the given accounting events, the statement of cash flows for All-Star Automotive Company for Year 1 would look like this:

• Cash flows from operating activities: $15,600 (services performed) - $5,600 (salary expense) - $5,800 (utilities expense) = $4,200
• Cash flows from investing activities: -$8,600 (land purchase) + $11,200 (land sale) = $2,600
• Cash flows from financing activities: $46,000 (common stock issued) + $11,200 (loan from State Bank) - $4,600 (loan repayment) - $2,600 (dividend paid) = $50,200

Therefore, the statement of cash flows for All-Star Automotive Company shows a net increase in cash of $57,000 ($4,200 + $2,600 + $50,200). This means that the company generated more cash than it used during Year 1.