Question

Problem 4-9 (Algo) Statement of cash flows [LO4-8] 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 $1,200.000 890,000 310.000 73.500 $ 292,500 The following balance sheet information also is available Cash Accounts receivable Accrued liabilities to operating expenses) Income taxes payable 12/91/2021 12/91/2020 $444,500 $ 89,000 158,000 119.000 100,000 79.000 29,000 53,000 In addition, the following transactions took place during the year 1 Common stock was issued for $138,000 in cash 2. Long-term investments were sold for $69,000 in cash. The original cost of the investments also was $69.000. 3. $99,000 in cash dividends was paid to shareholders. 4. The company has no outstanding debt, other than those payables listed above 5. Operating expenses include $49,000 in depreciation expense Required: 1. Prepare a statement of cash flows for 20 21 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, 20121 Cash flows from Operating Activities: Collections from customers $ Cash paid for operating Expenses 812.000 Cash paid for Income Taxes 101,500S Net Cash flows from operating activities $ 1,161,000 913,500 247,500 Cash flow from Investing activities Cash proceeds from Sale of long term Investments Net Cash flows from Investing Activities $ 69,000 69,000 138.000 (99,000) S 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 39.000 355,500 89.000 444,500 $

Working Notes: Collections from customers Opening balance of accounts Receivables Add: Service Revenue $ S $ $ S 119,000 1,200,000 1,319,000 158,000 1,161,000 Less: closing balance of accounts Receivables Cash paid for operating Expenses Opening balance Accured Liabilities Add: Operating Expenses Excluding Depreciation $ $ S S S 79,000 841,000 920,000 108,000 812.000 Less: Closing balance Accured Liabilities Cash paid for Income Taxes Opening balance Income taxes payable Add: Income tax Expenses $ 53,000 77,500 130,500 29,000 101,500 $ $ S Less: Closing balance Income taxes payable

$ 232,500 DIVERSIFIED PORTFOLIO CORPORATION Statement of Cash Flows For the Year Ended December 31, 20121 Cash flows from Operating Activities: Net Income Adjustments for non cash effects Depreciation expenses $ 49,000 Changes in Operating assets and liabilities: Increase in accounts receivables (39,000) Increases in Accounts Liabilities 29,000 Decrease in Income Taxes payable S (24,000 Net Cash flow from operating activities $ $ 15,000 247,500