Question

Please provide written out solution

The Diversified Portfolio Corporation provides investment advice to customers. A condensed income statement for the year ended December 31, 2021, appears below: Service revenue $ 900,000 Operating expenses 700.000 Income before income taxes 200,000 Income tax expense 50,000 Net income $ 150,000 The following balance sheet information also is available: Page 222 12/31/2021 12/31/2020 Cash $ 305,000 $ 70,000 Accounts receivable 120,000 100,000 Accrued liabilities (for operating expenses) 70,000 60,000 Income taxes payable 15,000 In addition, the following transactions took place during the year: 1. Common stock was issued for $100,000 in cash. 2. Long-term investments were sold for $50,000 in cash. The original cost of the investments also was $50,000. 3. $80,000 in cash dividends was paid to shareholders. 4. The company has no outstanding debt, other than those payables listed above. 5. Operating expenses include $30,000 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. Use a format similar to the one in the Concept Review Exercise at the end of Part B of this chapter. 2. Prepare the cash flows from operating activities section of Diversified's 2021 statement of cash flows using the indirect method. Use a format similar to the one in the Concept Review Exercise at the end of Part B of this chapter.

Answer 1

Answer:

1.

Prepare a statement of cash flows using direct method as follows:

Diversified portfolio corporation
Statement of cash flows
Cash flow from operating activities:
Collections from customers (900000 - (120000-100000)	880000
Payment of income taxes (50000 + (15000-10000)	-55000
Payment of operating expenses (700000-30000-(70000-60000)	-660000
Net cash flow from operating activities		165000
Cash flow from investing activities:
sale of investments	50000
Net cash flow from investing activities		50000
Cash flow from financing activities:
Proceeds from issue of stock	100000
Payment of dividend	-80000
Net Cash flow from financing activities		20000
Net increase/decrease in cash		235000
Beginning CCE		70000
Closing CCE		305000

2.

Prepare statement of cash flows in indirect method as follows:

Diversified portfolio corporation
Statement of cash flows
Net income	150000
Adjustments:
Depreciation expense	30000
Decrease in income tax payable	-5000
Increase in accrued liabilities	10000
Increase in accounts receivable	-20000
Net cash flow from operations		165000