C Not secure | ezto.mheducation.com/hm.tpx The Diversified Portfolio Corporation

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C Not secure | ezto.mheducation.com/hm.tpx The Diversified Portfolio Corporation provides investment advice to customers. A condensed income statement for the year ended December 31, 2016, appears below Service revenue Operating expenses $ 900,000 700,000 Income before income taxes200,000 Income tax expense 80,000 Net income 120,000 The following balance sheet information also is available 12/31/16 12/31/15 S 275,000 $ 70,000 120,000 100,000 Accounts payable (operating expenses) 70,000 60,000 10,000 15,000 Cash Accounts receivable Income taxes payable In addition, the following transactions took place during the year 1 Common stock was issued for $100,000 in cash 2 Long-term investments were sold for $50.000 in cash. The original cost of the investments also was $50,000 3 $80,000 in cash dividends was paid to shareholders 4 The company has no outstanding debt other than those payables listed above 5 Operating expenses include $30.000 in depreciation expense Required 1. Prepare a statement of cash flows for 2016 for the Diversified Portfolio Corporation, Use the direct method for reporting operating activities. (Amounts to be deducted should be indicated with a minus sign.) Type here to search lp

Explanation / Answer

SOLUTION

(A) Statement of cash flows using direct method-

(B) Statement of cash flows from opearting activities using indirect method-

Particulars Amount ($) Amount ($) Amount ($) Cash flows from operating activities Collection from customers 900,000 Less: Increase in accounts receivable (120,000-100,000) (20,000) 880,000 Cash paid for operating expense (700,000) Less: Increase in accounts payable (70,000-60,000) 10,000 (690,000) Depreciation expense 30,000 Income tax expense (80,000) Decrease in income tax payable (15,000-10,000) (5,000) (85,000) Net cash flows from opearting activities (A) 135,000 Cash flow from investing activities Long term investments 50,000 Net cash flow from investing activities (B) 50,000 Cash flow from financing activities Issue of common shares 100,000 Payment of dividend (80,000) 20,000 Net cash flows from financing activities (C) 20,000 Net increase in cash (A+B+C) 205,000 Add: Beginning cash balance 70,000 Ending cash balance 275,000

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