Your friend and colleague has been working for about a year since graduating from university. He has
Question:
Your friend and colleague has been working for about a year since graduating from university. He has come to you for advice on his saving and spending habits. You have accumulated the following information on his savings and spending that has occurred over the past year:
Salary received over the last year, net of income tax ..............................$45,000
Rent and utilities paid ................................................................... 16,600
Car expenses paid ..........................................................................4,800
Credit card debt at the start of the year ................................................1,000
Food, entertainment, recreation paid ...................................................6,000
Credit card debt at the end of the year .................................................2,500
Line of credit at the start of the year ...................................................2,500
Line of credit at the end of the year ....................................................1,200
Purchase of car ............................................................................20,000
Car loan at the end of the year .........................................................15,000
Cash account, beginning of year ............................................................500
Cash received from disposal of motorcycle .............................................1,000
Cash received from disposal of computer ................................................100
Cash account, end of year ................................................................1,000
Purchase of investments ..................................................................5,500
Student loan at the beginning of the year .............................................15,000
Student loan at the end of the year .....................................................10,000
Purchase of new computer ...............................................................1,500
Interest expense paid ......................................................................1,400
Instructions
(a) Prepare a statement of cash flow from information provided above using the direct method.
(b) Can you provide some advice to your friend on how he could improve his cash flow strategies, such as managing debt levels and terms of payment?
Step by Step Answer:
Financial Accounting Tools for Business Decision Making
ISBN: 978-1118644942
6th Canadian edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso, Barbara Trenholm, Wayne Irvine