Statement of Cash Flows (Indirect Method) Rainbow Companys income statement and comparative balance sheets follow.
| RAINBOW COMPANY |
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| Income Statement |
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| 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 |
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| Balance Sheet |
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| | Dec. 31, | Dec. 31, |
| | 2019 | 2018 |
| Assets | | |
| Cash and cash equivalents | $19,000 | $25,000 |
| Accounts receivable | 40,000 | 30,000 |
| Inventory | 103,000 | 77,000 |
| Prepaid expenses | 10,000 | 6,000 |
| InvestmentsAvailable-for-sale | 0 | 57,000 |
| Land | 190,000 | 100,000 |
| Buildings | 445,000 | 350,000 |
| Accumulated depreciationBuildings | (91,000) | (75,000) |
| Equipment | 179,000 | 225,000 |
| Accumulated depreciationEquipment | (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 | 6,000 | 5,000 |
| Income tax payable | 8,000 | 10,000 |
| Bonds payable | 155,000 | 125,000 |
| Preferred stock ($100 par value) | 100,000 | 75,000 |
| Common stock ($5 par value) | 379,000 | 364,000 |
| Paid-in capital in excess of par valueCommon | 133,000 | 124,000 |
| Retained earnings | 102,000 | 55,000 |
| AOCI (unrealized gain on investments) | 0 | 7,000 |
| Total liabilities and equity | $903,000 | $781,000 |
During 2019, the following transactions and events occurred in addition to the companys 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 |
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| Statement of Cash Flows |
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| For Year Ended December 31, 2019 |
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| 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 | |
| Answer | | |
| | Answer | |
| Investing Activities | | |
| Answer | | |
| Answer | | |
| Purchase of Land | Answer | |
| Answer | | |
| | Answer | |
| Financing Activities | | |
| Issuance of Bonds Payable | Answer | |
| Issuance of Common Stock | Answer | |
| Answer | | |
| | 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) 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 |
| Answer | |
| 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 |
| Answer | |
(2) Schedule of Noncash Investing and Financing Activities Answer
$Answer
