Statement of Cash Flows (Indirect Method) Rainbow Companys income statement and comparative balance sheets follow.

RAINBOW COMPANY
Income Statement
For Year Ended December 31,2019
Sales		$375,000
Dividend income		7,500
		382,500
Cost of goods sold	$220,000
Wages and other operating expenses	65,000
Depreciation expense	19,500
Patent amortization expense	3,500
Interest expense	6,500
Income tax expense	22,000
Loss on sale of equipment	2,500
Gain on sale of investments	(5,000)	334,000
Net income		$48,500

RAINBOW COMPANY
Balance Sheet
	Dec. 31,	Dec. 31,
	2019	2018
Assets
Cash and cash equivalents	$9,500	$12,500
Accounts receivable	20,000	15,000
Inventory	51,500	38,500
Prepaid expenses	5,000	3,000
InvestmentsAvailable-for-sale	0	28,500
Land	95,000	50,000
Buildings	222,500	175,000
Accumulated depreciationBuildings	(45,500)	(37,500)
Equipment	89,500	112,500
Accumulated depreciationEquipment	(21,000)	(23,000)
Patents	25,000	16,000
Total assets	$451,500	$390,500
Liabilities and Stockholders Equity
Accounts payable	$10,000	$8,000
Interest payable	3,000	2,500
Income tax payable	4,000	5,000
Bonds payable	77,500	62,500
Preferred stock ($100 par value)	50,000	37,500
Common stock ($5 par value)	189,500	182,000
Paid-in capital in excess of par valueCommon	66,500	62,000
Retained earnings	51,000	27,500
AOCI (unrealized gain on investments)	0	3,500
Total liabilities and equity	$451,500	$390,500

During 2019, the following transactions and events occurred in addition to the companys usual business activities. (1) Sold AFS investments costing $25,000 for $30,000 cash. Unrealized gains totaling $3,500 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 $7,000 cash that originally cost $23,000 and had $13,500 accumulated depreciation. (5) Issued bonds payable at face value for cash. (6) Acquired a patent with a fair value of $12,500 by issuing 250 shares of preferred stock at par value. (7) Declared and paid a $25,000 cash dividend. (8) Issued 1,500 shares of common stock for cash at $8 per share. (9) Recorded depreciation of $8,000 on buildings and $11,500 on equipment. Required a. Compute the change in cash and cash equivalents that occurred during 2019. Note: Do not use a negative sign with your answer. $Answer

AnswerIncrease in cash and cash equivalentsDecrease in cash and cash equivalentsNeither an increase or decrease in cash and cash equivalents

b. Prepare a 2019 statement of cash flows using the indirect method. Note: If a label isn't required, enter "N/A" for the label and enter zero for the amount (or leave the amount blank).

RAINBOW COMPANY
Statement of Cash Flows
For Year Ended December 31, 2019
Operating Activities
Net Income	Answer
Add (Deduct) Items to Convert Net Income to
Cash from Operations
Depreciation	Answer
AnswerImprovements to BuildingIssuance of Preferred StockPaid-in Capital IncreasePatent AmortizationPayment of DividendsPurchase of PatentRetained Earnings IncreaseN/A	Answer
AnswerLoss on Sale of EquipmentGain on Sale of EquipmentSale of EquipmentPurchase of EquipmentN/A	Answer
AnswerLoss on Sale of InvestmentsGain on Sale of InvestmentsSale of InvestmentsPurchase of InvestmentsN/A	Answer
Accounts Receivable Increase	Answer
Inventory Increase	Answer
Prepaid Expenses Increase	Answer
Accounts Payable Increase	Answer
Interest Payable Increase	Answer
Income Tax Payable Decrease	Answer
AnswerNet Cash Provided by Operating ActivitiesNet Cash Used by Operating ActivitiesNet Cash Provided by Investing ActivitiesNet Cash Used by Investing ActivitiesNet Cash Provided by Financing ActivitiesNet Cash Used by Financing Activities		Answer
Investing Activities
AnswerLoss on Sale of InvestmentsGain on Sale of InvestmentsSale of InvestmentsPurchase of InvestmentsN/A	Answer
Purchase of Land	Answer
AnswerImprovements to BuildingIssuance of Preferred StockPaid-in Capital IncreasePatent AmortizationPayment of DividendsPurchase of PatentRetained Earnings IncreaseN/A	Answer
AnswerLoss on Sale of EquipmentGain on Sale of EquipmentSale of EquipmentPurchase of EquipmentN/A	Answer
AnswerNet Cash Provided by Operating ActivitiesNet Cash Used by Operating ActivitiesNet Cash Provided by Investing ActivitiesNet Cash Used by Investing ActivitiesNet Cash Provided by Financing ActivitiesNet Cash Used by Financing Activities		Answer
Financing Activities
Issuance of Bonds Payable	Answer
Issuance of Common Stock	Answer
AnswerImprovements to BuildingIssuance of Preferred StockPaid-in Capital IncreasePatent AmortizationPayment of DividendsPurchase of PatentRetained Earnings IncreaseN/A	Answer
AnswerNet Cash Provided by Operating ActivitiesNet Cash Used by Operating ActivitiesNet Cash Provided by Investing ActivitiesNet Cash Used by Investing ActivitiesNet Cash Provided by Financing ActivitiesNet Cash Used by Financing Activities		Answer
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) cash paid for interest and for income taxes and (2) noncash investing and financing transactions. (1)

Supplemental Cash Flow Disclosures
Cash Paid for Interest	Answer
Cash Paid for Income Taxes	Answer

(2) Schedule of Noncash Investing and Financing Activities AnswerCapitalization of Building ImprovementDeclaration of Cash DividendIssuance of BondsIssuance of Preferred Stock to Acquire PatentSale of EquipmentN/A

$Answer