Question

Problem 4-9 (Algo) 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, 2021, appears below: Service revenue Operating expenses Income before income taxes Income tax expense Net income $1,160,000 830,000 330,000 82,500 $ 247,500 The following balance sheet information also is available: 12/31/2021 12/31/2020 Cash $ 441,500 $ 83,000 Accounts receivable 146,000 113,000 Accrued liabilities (for operating expenses) 96,000 73,000 Income taxes payable 23,000 41,000 In addition, the following transactions took place during the year: 1. Common stock was issued for $126,000 in cash. 2. Long-term investments were sold for $63,000 in cash. The original cost of the investments also was $63,000. 3. $93,000 in cash dividends was paid to shareholders. 4. The company has no outstanding debt, other than those payables listed above. 5. Operating expenses include $43,000 in depreciation expense. Required: 1. Prepare a statement of cash flows for 2021 for the Diversified Portfolio Corporation. Use the direct method for reporting operating activities. 2. Prepare the cash flows from operating activities section of Diversified's 2021 statement of cash flows using the indirect method.

Answer 1

DIVERSIFIED PORTFOLIO CORPORATION Statement of Cash Flows For the Year Ended December 31, 2021 Cash flows from Operating Activities: Cash received from customers Cash paid for operating Expenses 764,000 Cash paid for Income Taxes $ 100,500 Net Cash flows from operating activities $ 1,127,000 $ $ 864,500 262,500 Cash flow from Investing activities Cash proceeds from Sale of long term Investments Net Cash flows from Investing Activities $ 63,000 63,000 $ $ 126,000 (93,000) Cash flow from Financing activities Cash Proceeds from issuance of Common stock Cash payment for Dividends Net Cash flows from Financing activities Net Increase in Cash Cash and cash equivalents, January 1 Cash and cash equivalents, December 31 $ $ $ 33,000 358,500 83,000 441,500

Working Notes: Cash received from customers Opening balance of accounts Receivables Add: Service Revenue $ $ $ $ $ 113,000 1,160,000 1,273,000 146,000 1,127,000 Less: closing balance of accounts Receivables Cash paid for operating Expenses Opening balance Accured Liabilities Add: Operating Expenses Excluding Depreciation 73,000 787,000 860,000 96,000 764,000 Less: Closing balance Accured Liabilities $ $ Cash paid for Income Taxes Opening balance Income taxes payable Add: Income tax Expenses $ $ 41,000 82,500 123,500 23.000 100,500 Less: Closing balance Income taxes payable $

$ 247,500 DIVERSIFIED PORTFOLIO CORPORATION Statement of Cash Flows (Partial) For the Year Ended December 31, 2021 Cash flows from Operating Activities: Net Income Adjustments for non cash effects Depreciation expenses 43,000 Changes in Operating assets and liabilities: Increase in accounts receivables (33,000) Increases in Accounts Liabilities $ 23,000 Decrease in Income Taxes payable (18,000 Net Cash flow from operating activities $ $ 15,000 262,500