Question

i want the answer for all the requirements .

P4-52. Preparing a Statement of Cash Flows (Indirect Method) Rainbow Company's income statement and comparative balance sheets follow, LO3, 4, 5 MHC RAINBOW COMPANY Income Statement For Year Ended December 31, 2018 $750,000 15.000 765.000 Sales. Dividend income. Total revenue Cost of goods sold Wages and other operating expenses Depreciation expense. Patent amortization expense Interest expense Income tax expense.. Logs on sale of equipment Gain on sale of investments. Net income. $440,000 130.000 39,000 7.000 13.000 44 000 5,000 (3.000) 675.000 $ 90,000 RAINBOW COMPANY Balance Sheets Dec 31, 2018 Dec. 31, 2017 $ 19,000 40.000 103,000 10,000 Assets Cash and cash equivalents Accounts receivable Inventory Prepaid expenses Long-term investments Land. Buildings.. Accumulated depreciation buildings Equipment Accumulated depreciation-equipment Patents Total assets Liabilities and Stockholders' Equity Accounts payable Interest payable Income tax payable Bonds payable Preferred stock ($100 par value) Common stock (S5 par value) Paid-in capital in excess of par value-common Retained earnings Total liabilities and equity 190,000 445.000 (91,000) 179,000 (42,000) 50,000 $903.000 $ 25,000 30,000 77,000 6,000 57.000 100,000 350.000 {75.000) 225.000 (46.000) 32.000 $781.000 $ 20,000 6.000 8.000 155,000 100.000 379,000 133.000 102,000 $903.000 $ 16,000 5,000 10.000 125.000 75,000 364,000 124,000 62,000 $781.000 During 2018, the following transactions and events occurred: 1. Sold long-term investments costing S57,000 for $60,000 cash. 2. Purchased land for cash. 3. Capitalized an expenditure made to improve the building, 206 Chapter 4 Reporting and Analyzing Cash Flows Cambridge Business Publishers 4. Sold equipment for $14,000 cash that originally cost $46,000 and had $27,000 accumulated depreciation. 5. Issued bonds payable at face value for cash. 6. Acquired a patent with a fair value of $25,000 by issuing 250 shares of preferred stock at par value 7. Declared and paid a $50,000 cash dividend. 8. Issued 3,000 shares of common stock for cash at $8 per share, 9. Recorded depreciation of S16,000 on buildings and $23,000 on equipment. REQUIRED a Compute the change in cash and cash equivalents that occurred during 2018 Prepare a 2018 statement of cash flows using the indirect method. Prepare separate schedules showing (1) cash paid for interest and for income taxes and (2) noncash investing and financing transactions . Compute its (1) operating cash flow to current liabilities ratio, (2) operating cash flow to capi- tal expenditures ratio, and (3) free cash flow, b

Answer 1

a.

Cash and cash equivalents, Dec 31, 2017	$ 25,000
Cash and cash equivalents, Dec 31, 2018	19,000
Change in cash and cash equivalents during 2018	$ ( 6,000)

b.

Rainbow Company Statement of Cash Flows For the year ended December 31, 2018
Cash Flows from Operating Activities	$	$
Net Income		90,000
Adjustments to reconcile net income to net cash provided by operations
Depreciation expense	39,000
Patent amortization expense	7,000
Loss on sale of equipment	5,000
Gain on sale of investments	(3,000)
Dividend income	(15,000)
Working capital changes
Increase in accounts receivable	(10,000)
Increase in inventory	(26,000)
Increase in prepaid expenses	(4,000)
Increase in accounts payable	4,000
Increase in interest payable	1,000
Decrease in income taxes payable	(2,000)	(4,000)
Net cash flows from Operating Acivities		86,000
Cash Flows from Investing Activities
Cash from sale of long term investments	60,000
Cash from sale of equipment	14,000
Dividends received	15,000
Cash paid for land	(90,000)
Cash paid for buildings improvements	(95,000)
Net cash used in Investing Activities		(96,000)
Cash Flows from Financing Activities
Cash from issuance of bonds payable	30,000
Cash from issuance of common stock	24,000
Cash dividends paid	(50,000)
Net cash flows from Financing Activities		4,000
Increase ( decease) in cash and cash equivalents		(6,000)
Cash and cash equivalents, Dec 31, 2017		25,000
Cash and cash equivalents, Dec 31, 2018		$19,000

c. 1. Cash paid for interest = $ 5,000 + $ 13,000 - $ 6,000 = $ 12,000

Cash paid for income taxes = $ 10,000 + $ 44,000 - $ 8,000 = $ 46,000

2.

Schedule for Non-cash Investing and Financing Activities
Patents of fair value $ 25,000 acquired for 250 preferred shares at par	$ 25,000