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 $825,000 Dividend Income 16,500 841,500 Cost of Goods Sold $484,000 Wages and Other Operating Expenses 143,000 Depreciation Expense 42,900 Patent Amortization Expense 7,700 Interest Expense 14,300 Income Tax Expense 48,400 Loss on Sale of Equipment 5,500 Gain on Sale of Investments (11,000) 734,800 Net Income $106,700 RAINBOW COMPANY Balance Sheets Dec. 31, 2013 Dec. 31, 2012 Assets Cash and Cash Equivalents $20,900 $27,500 Accounts Receivable 44,000 33,000 Inventory 113,300 84,700 Prepaid Expenses 11,000 6,600 Long-term Investments Available for Sale 55,000 Fair Value Adjustment to Investments 7,700 Land 209,000 110,000 Buildings 489,500 385,000 Accumulated Depreciation - Buildings (100,100) (82,500) Equipment 196,900 247,500 Accumulated Depreciation-Equipment (46,200) (50,600) Patents 55,000 35,200 Total Assets $993,300 $859,100 Liabilities and Stockholders' Equity Accounts Payable $22,000 $17,600 Interest Payable 6,600 5,500 Income Tax Payable 8,800 11,000 Bonds Payable 170,500 137,500 Preferred Stock ($100 par value) 110,000 82,500 Common Stock ($5 par value) 416,900 400,400 Paid-in-capital in Excess of Par Value-Common 146,300 136,400 Retained Earnings 112,200 60,500 Unrealized Gain on Investments 7,700 Total Liabilities and Stockholders' Equity $993,300 $859,100 During the year, the following transactions occurred: 1. Sold long-term investments costing $55,000 for $66,000 cash. Unrealized gains totaling $7,700 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 $15,400 cash that originally cost $50,600 and had $29,700 accumulated depreciation. 5. Issued bonds payable at face value for cash. 6. Acquired a patent with a fair value of $27,500 by issuing 275 shares of preferred stock at par value. 7. Declared and paid a $55,000 cash dividend. 8. Issued 3,300 shares of common stock for cash at $8 per share. 9. Recorded depreciation of $17,600 on buildings and $25,300 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 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 Net Change in Cash Cashat Beginning of Year Cashat End of Year 0 0 $