Question

Julie operates a small aerobics studio, Yumba, Inc. She started her business on 01/01/17. Below are a list of transactions and financial events that took place during the fiscal year-end 2017. She has been authorized by the state of Oregon to sell up to 500 shares of common stock ($1 par value). Please prepare an income statement on the accrual basis and a statement of cash flows.

1. Yumba issues 250 shares to Julie for $75,000.
2. Julie takes out a 5 year (annual payments) loan of $90,000 on January 1^st. She will make her first payment on December 31, 2017. Interest rate of 8%.
3. Julie buys a building and equipment for her studio totaling $60,000 on January 1^st.
4. During the year, Julie earns $135,000 of revenue, of which $110,000 is received in 2017 and the remainder will be received in 2018.
5. Julie incurs $35,000 of salaries to her employees. Julie pays out $22,000 in 2017 and will pay out the remaining amount at the beginning of 2018.
6. Julie incurs $26,000 in utility costs. She pays $24,000 of these costs in 2017 and will pay out the remaining amount in 2018.
7. Julie incurs $5,000 to advertise in the local newspaper. She pays all of these expenses in 2017.
8. On December 31^st:
   1. Julie pays the first payment on her loan (including interest).
   2. Julie depreciates the building and equipment over 10 years, straight-line (no salvage value).
   3. Julie pays herself a dividend of $5,000.

Answer 1

Yumba Inc
Income Statement
For the year Ended December 31, 2018				Calculation of Interest cost
				Loan amount	$ 90000
	Amount in ($)			Interest rate	8%
Income:-				Interest for the year 2018	7200
Revenue earned	135000
Total (A)	135000
Expense less:-
Interest expense	7200
Depreciation	6000
Salaries	35000
Utility cost	26000
Advertisement expense	5000
Total (B)	79200
Net profit (A-B)	55800
Less: Dividend	5000
Profit available to Shareholder's	50800
Cash Flow statement
For the year ended December 31, 2018
	Amount in ($)
Cash flow from operating activities
Net profit before tax	55800
Add:
Depreciation	6000
Interest expense	7200
Net cash flow from operating activites (A)	69000
Cash flow from Investing activities
Purchase of building and equipment	-60000
Net cash flow from Investing activities (B)	-60000
Cash flow from financing activities
Proceed from issue of share	75000
Interest expense	-7200
Payment of dividend	-5000
Repayment of borrowing principal	-18000
Net cash flow financing activities (C )	44800
Net change in cash(A+B+C )	53800
Opening cash balance	-
Ending cash balance	53,800