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How do I prepare a statement of cash flows using the indirect method?

How do I prepare a statement of cash flows using the indirect method?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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How do I prepare a statement of cash flows using the indirect method?

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 Decemnber 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
Transcribed Image Text: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 Decemnber 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
E BusinessCourse Return to course O Support Dashboard RAINBOW COMPANY Balance Sheets Dec. 31, 2013 Dec. 31, 2012 Assets Cash and Cash Equivalents $24,700 $32,500 Accounts Receivable 52,000 39,000 Inventory 133,900 100,100 Prepaid Expenses 13,000 7,800 Long-term Investments-Available for Sale Fair Value Adjustment to Investments 65,000 9,100 Land 247,000 130,000 Buildings 578,500 455,000 Accumulated Depreciation- Buildings (118,300) (97,500) Equipment Accumulated Depreciation-Equipment 232,700 292,500 (54,600) (59,800) Patents 65,000 41,600 Total Assets $1,173,900 $1,015,300 Liabilities and Stockholders' Equity Accounts Payable $26,000 $20,800 Interest Payable 7,800 6,500 Income Tax Payable 10,400 13,000 Bonds Payable 201,500 162,500 Preferred Stock ($100 par value) 130,000 97,500 Common Stock ($5 par value) 492,700 473,200 Paid-in-capital in Excess of Par Value-Common 172,900 161,200 Retained Earnings 132,600 71,500 Unrealized Gain on Investments 9,100 Total Liabilities and Stockholders' Equity $1,173,900 $1,015,300 During the year, the following transactions occurred: 1. Sold long-term investments costing $65,000 for $78,000 cash. Unrealized gains totaling $9,100 related to these investments had been recorded in earlier years. At year-end, the fair value adjustment and unrealized gain account balances were eliminated. 2. Purchased land for cash. 3. Capitalized an expenditure made to improve the building. 4. Sold equipment for $18,200 cash that originally cost $59,800 and had $35,100 accumulated depreciation. 5. Issued bonds payable at face value for cash. 6. Acquired a patent with a fair value of $32,500 by issuing 325 shares of preferred stock at par value. 7. Declared and paid a $65,000 cash dividend. 8. Issued 3,900 shares of common stock for cash at $8 per share. 9. Recorded depreciation of $20,800 on buildings and $29,900 on equipment.
Transcribed Image Text:E BusinessCourse Return to course O Support Dashboard RAINBOW COMPANY Balance Sheets Dec. 31, 2013 Dec. 31, 2012 Assets Cash and Cash Equivalents $24,700 $32,500 Accounts Receivable 52,000 39,000 Inventory 133,900 100,100 Prepaid Expenses 13,000 7,800 Long-term Investments-Available for Sale Fair Value Adjustment to Investments 65,000 9,100 Land 247,000 130,000 Buildings 578,500 455,000 Accumulated Depreciation- Buildings (118,300) (97,500) Equipment Accumulated Depreciation-Equipment 232,700 292,500 (54,600) (59,800) Patents 65,000 41,600 Total Assets $1,173,900 $1,015,300 Liabilities and Stockholders' Equity Accounts Payable $26,000 $20,800 Interest Payable 7,800 6,500 Income Tax Payable 10,400 13,000 Bonds Payable 201,500 162,500 Preferred Stock ($100 par value) 130,000 97,500 Common Stock ($5 par value) 492,700 473,200 Paid-in-capital in Excess of Par Value-Common 172,900 161,200 Retained Earnings 132,600 71,500 Unrealized Gain on Investments 9,100 Total Liabilities and Stockholders' Equity $1,173,900 $1,015,300 During the year, the following transactions occurred: 1. Sold long-term investments costing $65,000 for $78,000 cash. Unrealized gains totaling $9,100 related to these investments had been recorded in earlier years. At year-end, the fair value adjustment and unrealized gain account balances were eliminated. 2. Purchased land for cash. 3. Capitalized an expenditure made to improve the building. 4. Sold equipment for $18,200 cash that originally cost $59,800 and had $35,100 accumulated depreciation. 5. Issued bonds payable at face value for cash. 6. Acquired a patent with a fair value of $32,500 by issuing 325 shares of preferred stock at par value. 7. Declared and paid a $65,000 cash dividend. 8. Issued 3,900 shares of common stock for cash at $8 per share. 9. Recorded depreciation of $20,800 on buildings and $29,900 on equipment.
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