Statement of Cash Flows (Indirect Method) The Rainbow Company's income statement and comparative balance sheets as of December 31 of 2013 and 2012 follow: RAINBOW COMPANY Income Statement For the Year Ended December 31, 2013 Sales Revenue $975,000 Dividend Income 19,500 994,500 Cost of Goods Sold $572,000 Wages and Other Operating Expenses 169,000 Depreciation Expense 50,700 Patent Amortization Expense 9,100 Interest Expense 16,900 Income Tax Expense 57,200 Loss on Sale of Equipment 6,500 Gain on Sale of Investments (13,000) 868,400 Net Income $126,100 RAINBOW COMPANY Balance Sheets Dec. 31, 2013 Dec. 31, 2012 Assets Cash and Cash Equivalents $24,700 $32,500 Accounts Receivable 52,000 39,000 Inventory 133,900 100,100 Prepaid Expenses 13,000 7,800 Long-term Investments Available for Sale 65,000 Fair Value Adjustment to Investments 9,100 Land 247,000 130,000 Buildings 578,500 455,000 Accumulated Depreciation - Buildings (118,300) (97,500) Equipment 232,700 292,500 Accumulated Depreciation-Equipment (54,600) (59,800) Patents 65,000 41,600 Total Assets $1,173,900 $1,015,300 Liabilities and Stockholders' Equity Accounts Payable $26,000 $20,800 Interest Payable 7,800 6,500 Income Tax Payable 10,400 13,000 Bonds Payable 201,500 162,500 Preferred Stock ($100 par value) 130,000 97,500 Common Stock (55 par value) 492,700 473,200 Paid-in-capital in Excess of Par Value-Common 172,900 161,200 Retained Earnings 132,600 71,500 Unrealized Gain on Investments - 9,100 Total Liabilities and Stockholders' Equity $1,173,900 $1,015,300 During the year, the following transactions occurred: 1. Sold long-term investments costing $65,000 for $78,000 cash. Unrealized gains totaling $9,100 related to these investments had been recorded in earlier years. At year-end, the fair value adjustment and unrealized gain account balances were eliminated. 2. Purchased land for cash. 3. Capitalized an expenditure made to improve the building. 4. Sold equipment for $18,200 cash that originally cost $59,800 and had $35,100 accumulated depreciation. 5. Issued bonds payable at face value for cash. 6. Acquired a patent with a fair value of $32,500 by issuing 325 shares of preferred stock at par value. 7. Declared and paid a $65,000 cash dividend. 8. Issued 3,900 shares of common stock for cash at $8 per share. 9. Recorded depreciation of $20,800 on buildings and $29,900 on equipment. Required a. Calculate the change in cash and cash equivalents that occurred during 2013. b. Prepare a statement of cash flows using the indirect method. a. Change in Cash during 2013 $ b. Use a negative sign with cash outflow answers. RAINBOW COMPANY Statement of Cash Flows For Year Ended December 31, 2013 Cash Flow from Operating Activities Net Income Add (deduct) items to convert net income to cash basis Depreciation Patent Amortization Loss on Sale of Equipment Gain on Sale of Investments Accounts Receivable Inventory Prepaid Expenses Accounts Payable Interest Payable Income Tax Payable Cash Flow Provided by Operating Activities Cash Flow from Investing Activities Sale of Investments Purchase of Land Improvements to Building Sale of equipment Cash Used by Investing Activities Cash Flow from Financing Activities Issuance of Bonds Payable Issuance of Common Stock Payment of Dividends Cash Provided by Financing Activities NetChange in Cash Cash at Beginning of Year Cash at End of Year