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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 COMPANY

Explanation / 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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