Statement of Cash Flows $($Indirect Method$)$

Rainbow Company$$s income statement and comparative balance sheets follow.

RAINBOW COMPANY

Income Statement

For Year Ended December $31,2019$

Sales $$750,000$

Dividend income $15,000$

$765,000$

Cost of goods sold $$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. $31,$

$20192018$

Assets

Cash and cash equivalents $$19,000$ $$25,000$

Accounts receivable $40,00030,000$

Inventory $103,00077,000$

Prepaid expenses $10,0006,000$

Investments$$Available$-$for$-$sale $057,000$

Land $190,000100,000$

Buildings $445,000350,000$

Accumulated depreciation$$Buildings $(91,000)(75,000)$

Equipment $179,000225,000$

Accumulated depreciation$$Equipment $(42,000)(46,000)$

Patents $50,00032,000$

Total assets $$903,000$ $$781,000$

Liabilities and Stockholders$$ Equity

Accounts payable $$20,000$ $$16,000$

Interest payable $6,0005,000$

Income tax payable $8,00010,000$

Bonds payable $155,000125,000$

Preferred stock $($$$100$ par value$)100,00075,000$

Common stock $($$$5$ par value$)379,000364,000$

Paid$-$in capital in excess of par value$$Common $133,000124,000$

Retained earnings $102,00055,000$

AOCI $($unrealized gain on investments$)07,000$

Total liabilities and equity $$903,000$ $$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.

RAINBOW COMPANY

Statement of Cash Flows

For Year Ended December $31,2019$

Operating Activities

Cash Received from Customers Answer

Cash Received as Dividends Answer

Cash Paid for Merchandise Purchased Answer

Cash Paid for Wages and Other Op Expenses Answer

Cash Paid for Interest Answer

Cash Paid for Income Taxes Answer

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Investing Activities

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Purchase of Land Answer

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Financing Activities

Issuance of Bonds Payable Answer

Issuance of Common Stock Answer

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Net Decrease in Cash and Cash Equivalents Answer

Cash and Cash Equivalents at Beginning of Year Answer

Cash and Cash Equivalents at End of Year Answer

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 Answer

Add $($Deduct$)$ Items to Convert Net Income to

Cash from Operations

Depreciation Answer

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Accounts Receivable Increase Answer

Inventory Increase Answer

Prepaid Expenses Increase Answer

Accounts Payable Increase Answer

Interest Payable Increase Answer

Income Tax Payable Decrease Answer

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$(2)$ Schedule of Noncash Investing and Financing Activities