P3-9A. Statement of Cash Flows (Direct Method) Refer to the data given for the Sky Company in Prob- lem P12-4A. Required a. Calculate the change in cash that occurred in 2019. b. Prepare a statement of cash flows using the direct method. Use one cash outflow for "cash paid for wages and other operating expenses." Accounts payable relate to inventory purchases only. LO4 (Appendix 12A) x MIL method. PI2-4A. 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 LO2 X 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 Chapter 12 Statement of Cash Flows 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 100,000 75,000 Preferred stock ($100 par value) 379,000 364,000 Common stock ($5 par value)) 133,000 124,000 Paid-in-capital in excess of par value-Common. 167,000 55,000 Retained earnings 7,000 Unrealized gain on investments. $949,000 $790,000 Total liabilities and stockholders' equity. 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. Calculate the change in cash and cash equivalents that occurred during 2019. b. Prepare a statement of cash flows using the indirect method. Price rnorted the following information for the past a. Cash, December 31, 2019 Cash, December 31, 2018 Cash increase during 2019 b. Supporting computations: Insert lines as necessary Cash received from customers: $800,000 sales-$10,000 A/R increase = $790,000 Example Cash received as dividends Cash paid for merchandise purchased Cash paid for wages and other operating expenses Cash paid for interest: 63,000 $ (29,000) $ 34,000 I Cash paid for interest: Cash paid for income taxes Sale of investments Purchase of land Improvement to buildings Sale of equipment Issuance of bonds wwwww Issuance of bonds Acquisition of patent in exchange for preferred stock Insurrance of common stock (two purchases) Payment of dividends Other Analysis Long-term investments - available for sale decreased by $50,000, which is the cost of the investments sold. Fair value adjustment to investments decreased by $7,000, due to the elimination of this account balance at year-end (this was the adjustment Statement of Cash Flows For Year Ended December 31, 2019 Cash flow from operating activities Cash received from customeres cash received as dividends Cash paid for merchandise purchased Cash paid for wages and other operating expense Cash paid for interest Cash paid for income taxes 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 Issuance of common stock Payment of dividends Cash provided by financing activities Sale of equipment Cash used by investing activities Cash flow 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 S