Problem 11-7A Calculate operating activities-direct method (LO11-4, 11-5, 11-7) The income statement, balance sheets, and additional information for Video Phones, Inc., are provided. $3,636,000 VIDEO PHONES, INC. Income Statement For the Year Ended December 31, 2021 Net sales Expenses: Cost of goods sold $2,450,000 Operating expenses 958,000 Depreciation expense 37,000 Loss on sale of land 9,000 Interest expense 20,000 Income tax expense 58,000 Total expenses Net income 3,532,000 $ 104,000 VIDEO PHONES, INC. Balance Sheets December 31 2021 2020 $ Assets Current assets: Cash Accounts receivable Inventory Prepaid rent Long-term assets: Investments 254,600 92,000 105,000 14,400 $227,800 70,000 145,000 7,200 115,000 0 VIDEO PHONES, INC. Balance Sheets December 31 2021 2020 $ 254,600 92,000 105,000 14,400 $227,800 70,000 145,000 7,200 Assets Current assets: Cash Accounts receivable Inventory Prepaid rent Long-term assets: Investments Land Equipment Accumulated depreciation Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Interest payable Income tax payable Long-term liabilities: Notes payable Stockholders' equity: Common stock Retained earnings Total liabilities and stockholders' equity 115,000 220,000 290,000 (81,000) $1,010,000 260,000 220,000 (44,000) $886,000 $ 75,000 7,000 16,000 $ 91,000 12,000 15,000 305,000 235,000 400,000 207,000 $1,010,000 400,000 133,000 $886,000 Additional Information for 2021: 1. Purchase investment in bonds for $115,000. 2. Sell land costing $40,000 for only $31,000, resulting in a $9,000 loss on sale of land. 3. Purchase $70,000 in equipment by issuing a $70,000 long-term note payable to the seller. No cash is exchanged in the transaction. 4. Declare and pay a cash dividend of $30,000. Required: Prepare the statement of cash flows for Video Phones, Inc., using the direct method. Disclose any noncash transactions in an accompanying note. (List cash outflows and any decrease in cash as negative amounts.) Answer is complete but not entirely correct. VIDEO PHONES, INC. Statement of Cash Flows For the Year Ended December 31, 2021 Cash Flows from Operating Activities: Depreciation expense X $ (37,000) X Loss (on sale of land) x 9,000 X Decrease in interest payable x (5,000) > Increase in income tax payable X 1,000 X Increase in accounts receivable X 22,000 X Decrease in inventory x 40,000 X Increase in prepaid rent x Net cash flows from operating activities 7.200 X 37,200 LUUUVIT JUILVIU X Decrease in interest payable Increase in income tax payable Increase in accounts receivable Decrease in inventory Increase in prepaid rent Net cash flows from operating activities Cash Flows from Investing Activities: Purchase investment in bonds Proceeds from sale of land (5,000) 1,000 22,000 40,000 7,200 $ 37,200 115,000 31,000 146,000 Net cash flows from investing activities Cash Flows from Financing Activities: Payment of cash dividends (30,000) Net cash flows from financing activities Net increase in cash Cash at the beginning of the period Cash at the end of the period Note: Noncash Activities Purchase equipment issuing a note payable (30,000) 26,800 227,800 $ 254,600 $ 70,000