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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

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 $1,500,000
Dividend Income 30,000
Total Revenue 1,530,000
Cost of Goods Sold $880,000
Wages and Other Operating Expenses 260,000
Depreciation Expense 78,000
Patent Amortization Expense 14,000
Interest Expense 26,000
Income Tax Expense 88,000
Loss on Sale of Equipment 10,000
Gain on Sale of Investments (6,000) 1,350,000
Net Income $180,000

RAINBOW COMPANY Balance Sheets
December 31, 2016 December 31, 2015
Assets
Cash and Cash Equivalents $48,000 $50,000
Accounts Receivable 80,000 60,000
Inventory 206,000 154,000
Prepaid Expenses 20,000 12,000
Long-Term Investments - 114,000
Land 380,000 200,000
Buildings 890,000 700,000
Accumulated Depreciation-Buildings (182,000) (150,000)
Equipment 358,000 450,000
Accumulated depreciation-Equipment (84,000) (92,000)
Patents 100,000 64,000
Total Assets $1,816,000 $1,562,000
Liabilities and Stockholders Equity
Accounts Payable $50,000 $32,000
Interest Payable 12,000 10,000
Income Tax Payable 16,000 20,000
Bonds Payable 310,000 250,000
Preferred Stock ($100 par value) 200,000 150,000
Common Stock ($5 par value) 758,000 728,000
Paid-in capital in excess of par value-Common 266,000 248,000
Retained Earnings 204,000 124,000
Total Liabilities and Stockholders Equity $1,816,000 $1,562,000

During 2016, the following transactions and events occurred:

1 Sold long-term investments costing $114,000 for $120,000 cash.
2 Purchased land for cash.
3 Capitalized an expenditure made to improve the building.
4 Sold equipment for $28,000 cash that originally cost $92,000 and had $54,000 accumulated depreciation.
5 Issued bonds payable at face value for cash.
6 Acquired a patent with a fair value of $50,000 by issuing 500 shares of preferred stock at par value.
7 Declared and paid a $100,000 cash dividend.
8 Issued 6,000 shares of common stock for cash at $8 per share.
9 Recorded depreciation of $32,000 on buildings and $46,000 on equipment.

  • 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 Answer
(2) Operating cash flow to capital expenditures ratio Answer
(3) Free cash flow Answer

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