Question

Statement of Cash Flows (Indirect Method) The Rainbow Company's income statement and comparative balance sheets as of December 31 of 2013 and 2012 follow: RAINBOW COMPANY Income Statement For the Year Ended December 31, 2013 Sales Revenue $975,000 Dividend Income 19,500 994,500 Cost of Goods Sold $572,000 Wages and Other Operating Expenses 169,000 Depreciation Expense 50,700 Patent Amortization Expense 9,100 Interest Expense 16,900 Income Tax Expense 57,200 Loss on Sale of Equipment 6,500 Gain on Sale of Investments (13,000) 868,400 Net Income $126,100

Answer 1

RAINBOW COMPANY
Statement of Cash Flows
For Year Ended December 31, 2013
Cash Flow from Operating Activities
Net Income		$126,100
Add (deduct) items to convert net income to cash basis
Depreciation		$50,700
Patent Amortization		$9,100
Loss on Sale of Equipment		$6,500
Gain on Sale of Investments		-$13,000
Accounts Receivable	-$13,000
Inventory	-$33,800
Prepaid Expenses	-$5,200
Accounts Payable	$5,200
Interest Payable	$1,300
Income Tax Payable	-$2,600
Cash Flow Provided by Operating Activities		$131,300
Cash Flow from Investing Activities
Sale of Investments		$78,000
Purchase of Land		-$117,000
Improvements to Building		-$123,500
Sale of equipment		$18,200
Cash Used by Investing activities		-$144,300
Cash Flow from Financing Activities
Issuance of Bonds Payable		$39,000
Issuance of Common Stock		$31,200
Payment of Dividends		-$65,000
Cash Provided by Financing Activities		$5,200
Net Change in Cash		-$7,800
Cash at Beginning of Year		$32,500
Cash at End of Year		$24,700

Issuance of Common Stock = Change in Common Stock + Change in Paid in capital Excess of Par value = ( $492,700 - $473,200 ) + ( $172,900 - $161,200 ) = $31,200.