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    Financial Accounting: Water Fun Store; prepare income statement and cash flows

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    The Water Fun Store is a retailer of water sports products for backyard swimming pools. During August, the firm had the following operating activities:

    Date Event

    Aug. 1 Bought $5000 of goods for resale from Pinetree Wholesalers on credit
    5 Paid $450 to the local newspaper for advertising that ran during July.
    6 Paid $975 rent for the month of August.
    9 Sold goods to customers for $7350 on credit. These goods had cost the firm $3600.
    10 Paid $3000 to Pinetree Wholesalers in partial payment for goods purchased August 1.
    11 Collected $5350 from goods sold on August 9.
    13 Bought $9200 of goods for resale from Stanley Company. Paid cash.
    16 Paid employees for their work so far in August, $1050.
    19 Sold goods to customers on credit for $6350. These goods had cost the firm $2400.
    25 Collected $3700 from the sales made on August 19.
    29 Paid $975 rent for the month of September.
    31 Employees had earned an additional $1200 of wages but would not be paid until September 1.

    A) Prepare a report of net cash flow from operating activities.
    B) Prepare an accrual basis income statement.
    C) Which documents a more realistic or complete picture of August's activity? Why?

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    Solution Preview

    Refer to attached excel file.

    The answers are in the 2nd worksheet. Workings are presented in the first worksheet.

    General Journal
    Date Particulars DR ($) CR ($)
    1 Purchases 5000
    Creditors - Pinetree Wholesalers 5000
    5 Accrued Advertising Expenses 450
    Cash 450
    6 Rent Expense 975
    Cash 975
    9 Debtors 7350
    Sales 7350
    10 Creditors - Pinetree Wholesalers 3000
    Cash ...

    Solution Summary

    The solution presents both an accrual-based income statement and a cash flow report together with explanations.