Rainbow Company's income statement and comparative balance sheets follow. RAINBOW COMPANY Income Statement For Year Ended December 31,2019 Sales Dividend income Cost of goods sold $750,000 15,000 765,000 $440,000 Wages and other operating expenses 130,000 Depreciation expense 39,000 Patent amortization expense 7,000 Interest expense 13,000 Income tax expense 44,000 Loss on sale of equipment 5,000 Gain on sale of investments (10,000) 668,000 Net income $97,000 RAINBOW COMPANY Balance Sheet Dec. 31, Dec. 31, 2018 2019 Assets Cash and cash equivalents Accounts receivable Inventory Prepaid expenses Investments-Available-for-sale Land $19,000 $25,000 40,000 30,000 103,000 77,000 10,000 6,000 0 57,000 190,000 100,000 Buildings 445,000 350,000 Accumulated depreciation-Buildings (91,000) (75,000) Equipment 179,000 225,000 Accumulated depreciation-Equipment (42,000) (46,000) Patents 50,000 32,000 Total assets $903,000 $781,000 Liabilities and Stockholders' Equity Accounts payable $20,000 $16,000 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 Retained earnings AOCI (unrealized gain on investments) Total liabilities and equity 6,000 5,000 8,000 10,000 155,000 125,000 100,000 75,000 379,000 364,000 133,000 124,000 102,000 55,000 0 7,000 $903,000 $781,000 During 2019, the following transactions and events occurred in addition to the company's usual business activities. (1) Sold AFS investments costing $50,000 for $60,000 cash. Unrealized gains totaling $7,000 related to these investments had been recorded in earlier years. (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 $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. Operating Activities RAINBOW COMPANY Statement of Cash Flows For Year Ended December 31, 2019 Cash Received from Customers Cash Received as Dividends Cash Paid for Merchandise Purchased Cash Paid for Wages and Other Op Expenses Cash Paid for Interest Cash Paid for Income Taxes Investing Activities Purchase of Land $ Financing Activities Issuance of Bonds Payable Issuance of Common Stock $ Net Decrease in Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of Year Cash and Cash Equivalents at End of Year c. Prepare separate schedules showing (1) reconciliation of net income to cash flow from operating activities and (2) noncash investing and financing transactions. (1) Reconciliation of net income to cash flow from operating activities Net Income Add (Deduct) Items to Convert Net Income to Cash from Operations Depreciation Accounts Receivable Increase Inventory Increase Prepaid Expenses Increase Accounts Payable Increase Interest Payable Increase Income Tax Payable Decrease $ (2) Schedule of Noncash Investing and Financing Activities