he Diversified Portfolio Corporation provides investment advice to customers. A

Question

he Diversified Portfolio Corporation provides investment advice to customers. A condensed income statement for the year ended December 31, 2016, appears below: Service revenue $ 1,060,000 Operating expenses 780,000 Income before income taxes 280,000 Income tax expense 84,000 Net income $ 196,000 The following balance sheet information also is available: 12/31/16 12/31/15 Cash $ 375,000 $ 78,000 Accounts receivable 136,000 108,000 Accounts payable (operating expenses) 86,000 68,000 Income taxes payable 18,000 31,000 In addition, the following transactions took place during the year: 1. Common stock was issued for $116,000 in cash. 2. Long-term investments were sold for $58,000 in cash. The original cost of the investments also was $58,000. 3. $88,000 in cash dividends was paid to shareholders. 4. The company has no outstanding debt, other than those payables listed above. 5. Operating expenses include $38,000 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.

Explanation / Answer

Statement of Cash Flows For the Year Ended December 31, 2016 Cash flows from operating activities Collections from customers 1032000 =1060000+108000-136000 Payment of operating expenses -724000 =780000+68000-86000-38000 Payment of income taxes -97000 =84000+31000-18000 Net cash flows from operating activities 211000 Cash flows from investing activities Sale of investments 58000 Net cash flows from investing activities 58000 Cash flows from financing activities Proceeds from issue of common stock 116000 Payment of dividends -88000 Net cash flows from financing activities 28000 Increase in cash 297000 Cash and cash equivalents, January 1 78000 Cash and cash equivalents, December 31 375000

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