Statement of Cash Flows
Colorado Corporation was organized at the beginning of the year, with the investment of $251,500 in cash by its stockholders. The company immediately purchased an office building for $304,900, paying $212,700 in cash and signing a three-year promissory note for the balance. Colorado signed a five-year, $60,500 promissory note at a local bank during the year and received cash in the same amount. During its first year, Colorado collected $93,970 from its customers. It paid $66,500 for inventory, $20,500 in salaries and wages, and another $4,000 in taxes. Colorado paid $6,200 in cash dividends.
Required
1. Prepare a statement of cash flows for the years
2. What does this statement tell you that an income statement does not?

Question

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Zviko Zviko · Answer 1 · 2020-10-14T19:22:11+02:00

Answer:

Required 1 ;

Statement of Cash Flows

Cash flow from Operating Activities

Cash Receipts from Customers $93,970

Cash Payments to Suppliers and Employees ($87,000)

Cash Generated from Operations $6,970

Income tax paid ($4,000)

Net Cash from Operating Activities $2,970

Cash flow from Investing Activities

Purchase of Office Building ($212,700)

Net Cash from Investing Activities ($212,700)

Cash flow from Financing Activities

Capital Investment $251,500

Promissory note (Five Year) $60,500

Dividends Paid ($6,200)

Net Cash from Financing Activities $305,800

Beginning Cash and Cash Equivalent $0

Movement during the year $96,070

Ending Cash and Cash Equivalent $96,070

Required 2 ;

It shows the liquidity position of the Company, which proves its credit worthiness.

Explanation:

I have prepared the Cash Flow Statement using the Direct Method in terms of IAS 7.

Cash Payments to Suppliers and Employees = ($66,500 + $20,500

= $87,000