Problem 4-9 Statement of cash flows [L04-8] The Diversified Portfolio Corporatio

Question

Problem 4-9 Statement of cash flows [L04-8] The Diversified Portfolio Corporation provides investment advice to customers. A condensed income statement for the year ended December 31, 2018, appears below: $1,200,000 850,000 350,000 70,000 280,000 Income tax The following balance sheet information also is available: $480,000 85,000 150,000 115,000 75,000 45,000 receivable 100,000 25,000 le In addition, the following transactions took place during the year 1. Common stock was issued for $130,000 in cash. 2. Lona-term investments were sold for $65.000 in cash. The oriainal cost of the investments also was $65.00o

Explanation / Answer

DIVERSIFIED PORTFOLIO CORPORATION Statement of cash Flows for the Year Ended December 31 2018 (Direct Method) Particulars Amount Amount A.Cash Flows From operating activities Collections from Customers 1165000 Less:Payments for operating Expenses -780000 Less: Income tax Expenses -90000 Net Cash Flow operating Activities 295000 B.Cash flows from Investing Activities Long term Investments sold 65000 Net cash Flow from Investment Activities 65000 C.Cash flows from Financing activities Common Stock Issued 130000 Divideds Paid to Shareholders -95000 35000 Net Cash flows from Financing activities D.Cash And cash Equivalent at the Beginning of the Year 85000 E.Cash And Cash Equivalents at the End of the Year(A+B+C+D) 480000 1.service revenue $1200000 less increase in receivables 35000(150000-115000) 2.Operating expenses 850000 less depreciation 45000 and increase in payables 25000 3.Income tax expenses 70000 plus decrease in income tax liabilities 20000 DIVERSIFIED PORTFOLIO CORPORATION Statement of cash Flows for the Year Ended December 31 2018 (Indirect Method) Particulars Amount Amount A.Cash Flows From operating activities Net Income 280000 Adjustments for NON Cash Items Add:Depreciation 45000 Changes in Current assets and Liabilities Increase in accounts receivables -35000 Increase in accounts Payables 25000 Decrease in Income tax Payables -20000 Net Cash Flows From operating activities Under Indirect Method 295000

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