A. Statement of Cash Flows (Indirect Method) The Sky Company's income statement and compara- tive balance sheets as of December 31 of 2019 and 2018 follow: Sales revenue. Dividend income.. Cost of goods sold.. SKY COMPANY Income Statement For Year Ended December 31, 2019 Wages and other operating expenses. Depreciation expense. Patent amortization expense Interest expense. Income tax expense. Loss on sale of equipment.. Gain on sale of investments. Net income $800,000 19,000 819,000 $440,000 130,000 39,000 7,000 13,000 30,000 5,000 (10,000) 654,000 $165,000 Assets Cash and cash equivalents Accounts receivable.. Inventory. Prepaid expenses.. Long-term investments-available for sale Fair value adjustment to investments.. Land Buildings. Accumulated depreciation-Buildings Equipment Accumulated depreciation-Equipment. Patents Total assets SKY COMPANY Balance Sheets Dec. 31, 2019 Dec. 31, 2018 $ 63,000 45,000 $ 29,000 35,000 100,000 77,000 10,000 6,000 50,000 7,000 190,000 100,000 445,000 350,000 (91,000) (75,000) 179,000 225,000 (42,000) (46,000) 50,000 32,000 $949,000 $790,000 continued x continued from previous page SKY COMPANY Balance Sheets Dec. 31, 2019 Dec. 31, 2018 Liabilities and Stockholders' Equity Accounts payable.. $ 21,000 6,000 $ 18,000 5,000 Interest payable 8,000 12,000 Income tax payable 135,000 130,000 Bonds payable Preferred stock ($100 par value) 100,000 75,000 379,000 364,000 Common stock ($5 par value) Paid-in-capital in excess of par value-Common. 133,000 124,000 167,000 55,000 Retained earnings Unrealized gain on investments. 7,000 Total liabilities and stockholders' equity $949,000 $790,000 During the year, the following transactions occurred: 1. Sold long-term investments costing $50,000 for $60,000 cash. Unrealized gains totaling $7,000 related to these investments had been recorded in earlier years. At year-end, the fair value adjust- ment and unrealized gain account balances were eliminated. 2. Purchased land for cash. 3. Capitalized an expenditure made to improve the building. 4. Sold equipment for $14,000 cash that originally cost $46,000 and had $27,000 accumulated depreciation. 5. Issued bonds payable at face value for cash. 6. Acquired a patent with a fair value of $25,000 by issuing 250 shares of preferred stock at par value. 7. Declared and paid a $53,000 cash dividend. 8. Issued 3,000 shares of common stock for cash at $8 per share. 9. Recorded depreciation of $16,000 on buildings and $23,000 on equipment. Required a. b. Calculate the change in cash and cash equivalents that occurred during 2019. Prepare a statement of cash flows using the indirect method. a. P12-4A. Statement of Cash Flows (Indirect Method) (L02) Cash, December 31, 2019 Cash, December 31, 2018 Cash increase during 2019 Information provided on balance sheet $ $ 555 $ 80,000 (32,000) 48,000 26 27 b. Supporting computations: Insert additional lines as necessary 28 29 30 31 32 33 34 The adjustments to convert the net income of $165,000 to cash provided by operating activities of $169,000 are shown in the statement of cash flows. Sale of investments: $60,000 given in problem data 35 36 37 38 Purchase of land 39 40 Example Improvements to building: Sale of equipment Issuance of bonds payable Acquisition of patent in exchange for preferred stock Issuance of common stock Payment of dividends Payment of dividends Other Analysis -Long term investments available for sale Fair value adjustment to investments Accumulated Depreciation - building -Equipment decreased -Accumulated depreciation for equipment Patents increased Insert information from text Preferred stock increased Retained earnings increased Unrealized gain on investments decreased Sky Company Statement of Cash Flows For Year Ended December 31, 2019 Cash flow from operating activities Net income Given in data set 25,000 Add (deduct) items to convert net income to cash basis Depreciation Patent amortizatrion Loss on sale of equipment Gain on sale of investments Accounts Receivable increase Inventory increase 24,000 5 Cash flow from operating activities Net income Add (deduct) items to convert net income to cash basis Depreciation Patent amortizatrion Loss on sale of equipment Gain on sale of investments Accounts Receivable increase Inventory increase Prepaid expenses increase Accounts payable increase Interest payable increase Income tax payable decrease Cash provided by operating activities Cash flow from investing activities Sale of investments Purchase of land Improvements to building Sale of equipment Cash used by investing activities Cash flow from financing activities Issuance of bonds payable Given in data set $ 25,000 check figure - Cash provided by operating activities $169,000 Check figure - Cash used by investing activities $111,000 24,000 169,000 ady Sheet Sheet2 Sheet3 Sheet4 Sheets 231 232 233 234 235 236 237 238 239 240 241 Cash now from financing activities Issuance of bonds payable Issuance of common stock Payment of dividends Cash provided by financing activities Net increase in cash Cash at beginning of year Cash at end of year Cash provided by financing activities $-24,000 Given in data set, part a P12-5A. Analyzing Cash Flow Ratios 242 243 244 245 246 (103) 247 248 249 250 $ 169,000 Free Cash Flow even man Operating Cash Flow to Current Liabilities Ratio 1.01 Operating Cash Flow to Capital Expenditures ratio 3.0