Statement of Cash Flows (Indirect Method) The Rainbow Company\'s income statemen
ID: 2571339 • Letter: S
Question
Statement of Cash Flows (Indirect Method) The Rainbow Company's income statement and comparative balance sheets as of December 31 of 2016 and 2015 follow: RAINBOW COMPANY Income Statement For the Year Ended December 31, 2016 $750,000 19,000 769,000 Sales Revenue Dividend Income Cost of Goods Sold Wages and Other Operating Expenses Depreciation Expense Patent Amortization Expense Interest Expense Income Tax Expense Loss on Sale of Equipment Gain on Sale of Investments $440,000 130,000 39,000 7,000 13,000 44,000 5,000 (10,000) 668,000 $101,000 Net Income RAINBOW COMPANYExplanation / Answer
a. Change in cash and cash equivalent = $4,000 decrease.
b. Cash Flow Statement
Particulars
Amount
Total Amount
Cash Flow from Operating Activities
Net Income
101,000
Add: Items for cash basis
Depreciation
39,000
Patent Amortization
7,000
Loss on sale of Equipment
5,000
Gain on sale of Investments
(10,000)
Accounts Receivable (Increase)
(15,000)
Inventory(Increase)
(26,000)
Prepaid Expenses(Increase)
(4,000)
Accounts Payable (Increase)
4,000
Interest Payable(Increase)
1,000
Income Tax Payable(Decrease)
(4,000)
Cash Flow provided by operating activities
98,000
Cash Flow from Investing Activates
Sale of Investments
60,000
Purchase of Land
(90,000)
Improvements to Buildings (Note 1)
(95,000)
Sale of Equipment
14,000
Cash Used by Investing activity
(111,000)
Cash Flow from Financing Activity
Issuance of Bonds
40,000
Issuance of common stock
24,000
Payment of Dividends
(55,000)
Cash provided by Financing activities
9,000
Net outflow of Cash
(4,000)
Cash at the Beginning of year
29,000
Cash at end of year
25,000
Note 1: Building Account
Particulars
Amount
Particulars
Amount
Opening Balance
350,000
Improvements to Building (Balancing Figure)
95,000
Closing Balance
445,000
TOTAL
445,000
TOTAL
445,000
Particulars
Amount
Total Amount
Cash Flow from Operating Activities
Net Income
101,000
Add: Items for cash basis
Depreciation
39,000
Patent Amortization
7,000
Loss on sale of Equipment
5,000
Gain on sale of Investments
(10,000)
Accounts Receivable (Increase)
(15,000)
Inventory(Increase)
(26,000)
Prepaid Expenses(Increase)
(4,000)
Accounts Payable (Increase)
4,000
Interest Payable(Increase)
1,000
Income Tax Payable(Decrease)
(4,000)
Cash Flow provided by operating activities
98,000
Cash Flow from Investing Activates
Sale of Investments
60,000
Purchase of Land
(90,000)
Improvements to Buildings (Note 1)
(95,000)
Sale of Equipment
14,000
Cash Used by Investing activity
(111,000)
Cash Flow from Financing Activity
Issuance of Bonds
40,000
Issuance of common stock
24,000
Payment of Dividends
(55,000)
Cash provided by Financing activities
9,000
Net outflow of Cash
(4,000)
Cash at the Beginning of year
29,000
Cash at end of year
25,000
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