Problem 1
To prepare the statement of cash flows, accountants for Internet Guide, Inc
have summarized 20X8 activity in the Cash account as follows:
Cash
Beginning balance
53,600 Payments on accounts
Receipts of interest
17,100
payable
399,100
Collections from
Payments of dividends
27,200-
customers
673,700
Payments of salaries
Issuance of common stock
47,300
and wages
143,800
Payments of interest
26,900
Purchase of equipment
Payments of operating
10,200
expenses
34,300
Payment of note payable
67,700
Payment of income tax
18,900
Ending balance
63,600
Required:
1. Prepare the statement of cash flows of Internet Guide, Inc., for the year ended
December 31, 20X8, using the direct method for operating activities. [75 points]
2.
a. The president has reviewed these statements and has several questions. First, he
would like you to explain in your own words what is the purpose of the Statement
of Cash Flows. [10 points]
b. He also is concerned that the last 3 years of the Statement of Cash Flows have
shown that there has been an increase in cash but that the company is having trouble
meeting its current debts. He would like you to help explain the reason for this. In
your answer, list at least five possible causes for this trouble. [15 points]
He is aware that you only have the last year's Statement of Cash Flows. Therefore,
some of your answers may have to be general in nature
A