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:
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 $900,000 Dividend Income 18,000 918,000 Cost of Goods Sold $528,000 Wages and Other Operating Expenses 156,000 Depreciation Expense 46,800 Patent Amortization Expense 8,400 Interest Expense 15,600 Income Tax Expense 52,800 Loss on Sale of Equipment 6,000 Gain on Sale of Investments (12,000) 801,600 Net Income $116,400 Buildings RAINBOW COMPANY Balance Sheets Dec. 31, 2013 Dec. 31, 2012 Assets Cash and Cash Equivalents $22,800 $30,000 Accounts Receivable 48,000 36,000 Inventory 123,600 92,400 Prepaid Expenses 12,000 7,200 Long-term Investments-Available for Sale 60,000 Fair Value Adjustment to Investments 8,400 Land 228,000 120,000 534,000 420,000 Accumulated Depreciation - Buildings (109,200) (90,000) Equipment 214,800 Accumulated Depreciation Equipment (50,400) (55,200) Patents 60,000 38,400 Total Assets $1,083,600 $937,200 Liabilities and Stockholders' Equity Accounts Payable $24,000 $19,200 Interest Payable 7,200 6,000 Income Tax Payable 9,600 12,000 Bonds Payable 186,000 150,000 Preferred Stock ($100 par value) 120,000 90,000 Common Stock ($5 par value) 454,800 436,800 Paid-in-capital in Excess of Par Value-Common 159,600 148,800 Retained Earnings 122,400 66,000 Unrealized Gain on Investments 8,400 Total Liabilities and Stockholders' Equity $1,083,600 $937,200 During the year, the following transactions occurred: 1. Sold long-term investments costing $60,000 for $72,000 cash. Unrealized gains totaling $8,400 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 $16,800 cash that originally cost $55,200 and had $32,400 accumulated depreciation. 5. Issued bonds payable at face value for cash. 6. Acquired a patent with a fair value of $30,000 by issuing 300 shares of preferred stock at par value. 7. Declared and paid a $60,000 cash dividend. 8. Issued 3,600 shares of common stock for cash at $8 per share. 9. Recorded depreciation of $19,200 on buildings and $27,600 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 $ 0 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 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 Net Change in Cash Cash at Beginning of Year Cash at End of Year OOOOOOOOOOOOOOOOOOOOOOOO
