Please assist with section D ONLY:
Preparing a Statement of Cash Flows (Indirect Method) Rainbow Company's income statement and comparative balance sheets follow. RAINBOW COMPANY Income Statement For Year Ended December 31, 2016 Sales Dividend Income Total Revenue Cost of Goods Sold 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 $750,000 15,000 765,000 $440,000 130,000 39,000 7,000 13,000 44,000 5,000 (3,000) 675,000 $90,000 Net Income RAINBOW COMPANY Balance Sheet:s December 31, 2016 December 31, 2015 Assets Cash and Cash Equivalents Accounts Receivable Inventory Prepaid Expenses Long-Term Investments Land Buildings Accumulated Depreciation-Buildings Equipment Accumulated depreciation-Equipment Patents $19,000 40,000 103,000 10,000 190,000 445,000 (91,000) 179,000 (42,000) 50,000 $903,000 $25,000 30,000 77,000 6,000 57,000 100,000 350,000 (75,000) 225,000 (46,000) 32,000 $781,000 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 $20,000 6,000 8,000 155,000 100,000 379,000 133,000 $16,000 5,000 10,000 125,000 75,000 364,000 124,000 Retained Earnings 102,000 62,000 $903,000 $781,000 Total Liabilities and Stockholders' Equity During 2016, the following transactions and events occurred: 1 Sold long-term investments costing $57,000 for $60,000 cash. 2 Purchased land for cash 3 Capitalized an expenditure made to improve the building. Sold equipment for $14,000 cash that originally cost $46,000 and had $27,000 4 accumulated depreciation. 5 Issued bonds payable at face value for cash. 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 $50,000 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. Compute the change in cash and cash equivalents that occurred during 2016 $6,000 V b. Prepare a 2016 statement of cash flows using the indirect method. b. Prepare a 2016 statement of cash flows using the indirect method. RAINBOW COMPANY STATEMENT OF CASH FLOWS FOR YEAR ENDED DECEMBER 31, 2016 Cash flows from operating activities Net income $90,000 Add (deduct) items to convert net income to cash basis Depreciation 9,000 Patent amortization 7,000 5,000 (3,000) (10,000) (26,000 Loss on sale of equipment Gain on sale of investments Accounts receivable increase Inventory increase Prepaid expenses increase (4,000) 4,000 Accounts payable increase Interest payable increase Income tax payable decrease ,000 (2,000) 101,000 Net cash provided by operating activities Cash flows from investing activities Sale of investments 60,000 Purchase of land (90,000) Improvements to building 95,000 Sale of equipment 4,000 (111,000) Net cash used by investing activities Cash flows from financing activities 0,000 24,000 (50,000) Issuance of bonds payable ssuance of common stock Payment of dividends 4,000 Net cash provided by financing activities (6,000) Net change in cash 25,000 Cash and cash equivalents at beginning of year 19,000 Cash and cash equivalents at end of year 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 12,000 Cash paid for income taxes $46,000 (2) Schedule of noncash investing and financing activities: issuance of preferred stock to acquire patent $ 25,000 $25,000 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 2.65 X (2) Operating cash flow to capital expenditures ratio 0.55 (3) Free cash flow (10,000) x
