Recording Transactions and Preparing a Simple Income
Statement and Partial Cash Flow Statement
The following transactions were made by Manning, Inc.:
1. Merchandise was purchased for $180,000 cash.
2. Sales during the year (half received in cash) were $250,000.
3. Cost of goods sold in transaction 2 was $130,000.
4. Wages earned by employees was $42,000, of which $20,000 was still unpaid at year end.
5. Prepaid rent at the beginning of the year was $36,000.This represented rent for 18 months.
6. Utilities incurred during the year totaled $8,500. Three fourths of this was paid by year end.
Required
a. Record these transactions using the accounting equation. Set up separate columns for assets, liabilities, and shareholders’ equity.
b. Prepare an income statement.
c. Prepare the operating activities section of the statement of cash flows (using the direct method).
d. Comment on any differences in net income and cash flow from operating activities.