Preparing a Statement of Cash Flows (Direct Method) 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 $171,000 $225,000 Accounts Receivable 360,000 270,000 Inventory 927,000 693,000 Prepaid Expenses 90,000 54,000 Long-Term Investments 513,000 Land 1,710,000 900,000 Buildings 4,005,000 3,150,000 Accumulated Depreciation-Buildings (819,000) (675,000) Equipment 1,611,000 2,025,000 Accumulated depreciation Equipment (378,000) (414,000) Patents 450,000 288,000 Total Assets $8,127,000 $7,029,000 Liabilities and Stockholders' Equity Accounts Payable $180,000 $144,000 Interest Payable 54,000 45,000 Income Tax Payable 72,000 90,000 Bonds Payable 1,395,000 1,125,000 Preferred Stock ($100 par value) 900,000 675,000 Common Stock ($5 par value) 3,411,000 3,276,000 Paid-in capital in excess of par value-Common 1,197,000 1,116,000 Land 1,710,000 900,000 Buildings 4,005,000 3,150,000 Accumulated Depreciation-Buildings (819,000) (675,000) Equipment 1,611,000 2,025,000 Accumulated depreciation-Equipment (378,000) (414,000) Patents 450,000 288,000 Total Assets $8,127,000 $7,029,000 Liabilities and Stockholders' Equity Accounts Payable $180,000 $144,000 Interest Payable 54,000 45,000 Income Tax Payable 72,000 90,000 Bonds Payable 1,395,000 1,125,000 Preferred Stock ($100 par value) 900,000 675,000 Common Stock ($5 par value) 3,411,000 3,276,000 Paid-in capital in excess of par value-Common 1,197,000 1,116,000 Retained Earnings 918,000 558,000 Total Liabilities and Stockholders' Equity $8,127,000 $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. 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. Note: Use a negative sign with your answer, if the change is a decrease. $ (54,000) b. Prepare a 2016 statement of cash flows using the direct method. Use one cash outflow for "cas C. Prepare separate schedules showing (1) cash paid for interest and for income taxes and (2) nor Statement of Cash Flows Separate Schedules Note: Use negative signs to indicate a reduction in net cash/cash outflow. RAINBOW COMPANY STATEMENT OF CASH FLOWS (Direct Method) FOR YEAR ENDED DECEMBER 31, 2016 Cash flows from operating activities b. Prepare a 2016 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. c. Prepare separate schedules showing (1) cash paid for interest and for income taxes and (2) noncash investing and financing transactions. Statement of Cash Flows Separate Schedules Note: Use negative signs to indicate a reduction in net cash/cash outflow. RAINBOW COMPANY STATEMENT OF CASH FLOWS (Direct Method) FOR YEAR ENDED DECEMBER 31, 2016 Cash flows from operating activities Cash received from customers 6,660,000 Cash received as dividends Cash paid for merchandise purchased 0 Cash paid for wages and other operating expenses Cash paid for interest 0 Cash paid for income taxes 0 0 Net cash from operating activities Cash flows from investing activities Sale of investments 0 0 Improvements to building 0 Sale of equipment 0 Net cash from investing activities 0 Cash flows from financing activities 0 Issuance of common stock Payment of dividends Net cash from financing activities 0 0 $ Ending cash balance Please answer I parts of the question. Note: Use a negative sign with your answer, if the change is a decrease. $ (54,000) b. Prepare a 2016 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. C. Prepare separate schedules showing (1) cash paid for interest and for income taxes and (2) noncash investing and financing transactions. Statement of Cash Flows Separate Schedules Note: Use negative signs to indicate a reduction in net cash/cash outflow. o o (1) Reconciliation of net income to net cash flow from operating activities A $ 0 Add (deduct) items to convert net income to cash basis Depreciation 0 Patent amortization 0 Loss on sale of equipment Gain on sale of investments Accounts receivable increase 0 Inventory increase 0 Prepaid expenses increase Accounts payable increase 0 Interest payable increase 0 Income tax payable decrease Net cash provided by operating activities 0 (2) Schedule of noncash investing and financing activities: $ 0 0