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Rainbow Company's income statement and comparative balance sheets follow. RAINBOW COMPANY Income Statement For Year Ended December 31, 2016 Sales $6,750,000 Dividend Income 135,000 Total Revenue 6,885,000 Cost of Goods Sold $3,960,000 Wages and Other Operating Expenses 1,170,000 Depreciation Expense 351,000 Patent Amortization Expense 63,000 Interest Expense 117,000 Income Tax Expense 396,000 Loss on Sale of Equipment 45,000 Gain on Sale of Investments (27,000) 6,075,000 Net Income $810,000 RAINBOW COMPANY Balance Sheets December 31, 2016 December 31, 2015 Assets Cash and Cash Equivalents Accounts Receivable Inventory Prepaid Expenses Long-Term Investments Land $145,000 360,000 927,000 90,000 $225,000 270,000 693,000 54,000 513,000 900,000 1,710,000 Long-Term Investments Land 1,710,000 4,005,000 (819,000) 1,611,000 (378,000) 450,000 $8,101,000 13,000 900,000 3,150,000 (675,000) 2,025,000 (414,000) 288,000 $7,029,000 Buildings Accumulated Depreciation-Buildings Equipment Accumulated depreciation-Equipment Patents Total Assets Liabilities and Stockholders' Equity Accounts Payable Interest Payable Income Tax Payable Bonds Payable Preferred Stock ($100 par value) Common Stock ($5 par value) Paid-in capital in excess of par value-Common Retained Earnings Total Liabilities and Stockholders' Equity $154,000 54,000 72,000 1,395,000 900,000 3,411,000 1,197,000 918,000 $8,101,000 $144,000 45,000 90,000 1,125,000 675,000 3,276,000 1,116,000 558,000 $7,029,000 During 2016, the following transactions and events occurred: 1 Sold long-term investments costing $513,000 for $540,000 cash. 2 Purchased land for cash. 3 Capitalized an expenditure made to improve the building. 4 Sold equipment for $126,000 cash that originally cost $414,000 and had $243,000 accumulated depreciation. 5 Issued bonds payable at face value for cash. 6 Acquired a patent with a fair value of $225,000 by issuing 2.250 shares of preferred stock at par value. 1 Sold long-term investments costing $513,000 for $540,000 cash. 2 Purchased land for cash. 3 Capitalized an expenditure made to improve the building. 4 Sold equipment for $126,000 cash that originally cost $414,000 and had $243,000 accumulated depreciation. 5 Issued bonds payable at face value for cash. 6 Acquired a patent with a fair value of $225,000 by issuing 2.250 shares of preferred stock at par value. 7 Declared and paid a $450,000 cash dividend. 8 Issued 27,000 shares of common stock for cash at $8 per share. 9 Recorded depreciation of $144,000 on buildings and $207,000 on equipment. a. Compute the change in cash and cash equivalents that occurred during 2016. b. Prepare a 2016 statement of cash flows using the indirect method. C. Prepare separate schedules showing (1) cash paid for interest and for income taxes and (2) noncash investing and financing transactions. d. Compute its (1) operating cash flow to current liabilities ratio, (2) operating cash flow to capital expenditures ratio, and (3) free cash flow. part a. part b. part c. part d. a. Compute the change in cash and cash equivalents that occurred during 2016. Note: Use a negative sign with your answer, if the change was a decrease. 45000 b. Prepare a 2016 statement of cash flows using the indirect method. Note: Use negative signs with answers that reduce net cash. RAINBOW COMPANY STATEMENT OF CASH FLOWS FOR YEAR ENDED DECEMBER 31, 2016 Cash flows from operating activities Net income $ 810000 Add (deduct) items to convert net income to cash basis Depreciation 351000 Patent amortization 63000 Loss on sale of equipment Gain on sale of investments -27000 Accounts receivable increase -90000 Inventory increase -234000 Prepaid expenses increase -36000 Accounts payable increase Interest payable increase 9000 Income tax payable decrease -18000 Net cash provided by operating activities Cash flows from investing activities Sale of investments 540000 Purchase of land -810000 Improvements to building Sale of equipment 126000 Net cash used by investing activities Cash flows from financing activities 10000 -90000 -234000 -36000 10000 9000 -18000 Accounts receivable increase Inventory increase Prepaid expenses increase Accounts payable increase Interest payable increase Income tax payable decrease Net cash provided by operating activities Cash flows from investing activities Sale of investments Purchase of land Improvements to building Sale of equipment Net cash used by investing activities Cash flows from financing activities 540000 -810000 126000 Issuance of common stock Payment of dividends Net cash provided by financing activities Ending cash balance c. Prepare separate schedules showing (1) cash paid for interest and for income taxes and (2) noncash investing and financing transactions. (1) Supplemental Cash Flow Disclosures Cash paid for interest $ Cash paid for income taxes (2) Schedule of noncash investing and financing activities: $ depreciation a. Compute the change in cash and cash equivalents that occurred during 2016. b. Prepare a 2016 statement of cash flows using the indirect method. c. Prepare separate schedules showing (1) cash paid for interest and for income taxes and (2) noncash investing and financing transactions. d. Compute its (1) operating cash flow to current liabilities ratio, (2) operating cash flow to capital expenditures ratio, and (3) free cash flow. part a. part b. part c. part d. d. Compute its (1) operating cash flow to current liabilities ratio, (2) operating cash flow to capital expenditures ratio, and (3) free cash flow. Round your answers to (1) and (2) to two decimal places. (1) Operating cash flow to current liabilities ratio (2) Operating cash flow to capital expenditures ratio (3) Free cash flow $