Preparing a Statement of Cash Flows (Indirect Method) Rainbow Company’s income s
ID: 2431701 • Letter: P
Question
Preparing a Statement of Cash Flows (Indirect Method)
Rainbow Company’s income statement and comparative balance sheets follow.
During 2016, the following transactions and events occurred:
Required
a. Compute the change in cash and cash equivalents that occurred during 2016.
$Answer
b. Prepare a 2016 statement of cash flows using the indirect method.
c. Prepare separate schedules showing (1) cash paid for interest and for income taxes and (2) noncash investing and financing transactions.
d. Compute its (1) operating cash flow to current liabilities ratio, (2) operating cash flow to capital expenditures ratio, and (3) free cash flow.
Round your answers to (1) and (2) to two decimal places.
Income Statement
For Year Ended December 31, 2016 Sales $750,000 Dividend Income 15,000 Total Revenue 765,000 Cost of Goods Sold $440,000 Wages and Other Operating Expenses 130,000 Depreciation Expense 39,000 Patent Amortization Expense 7,000 Interest Expense 13,000 Income Tax Expense 44,000 Loss on Sale of Equipment 5,000 Gain on Sale of Investments (3,000) 675,000 Net Income $90,000 ABC Compary-Common Size Percentoges Dec-11 Change Colculatecmmon sied fnancicl statement analysis (horizontal and vertical analysis) and dolor amount ond percent charges Calculate ratios in the ratios tab for 201 Recesoble Anolyscs-Liabiies and S Acct 453311 318 8,432.5 23400 Fod. Poyrol Taves Povablo 6.0330 96581 35 8.105.000 793.725a9CO 834 563 D481. o$16.410.OR esame e
Explanation / Answer
a. Change in cash and cash equivalents that occurred during 2016 = $ 19,000 - $ 25,000 = $ ( 6,000) Decrease
b.
c.
d.
Rainbow Company Statement of Cash Flows For the year ended December 31, 2016 Cash Flows from Operating Activities Net Income $ 90,000 Adjustments to reconcile net income with net cash flows from operating activities Depreciation Expense $ 39,000 Patent Amortization 7,000 Loss on Sale of Equipment 5,000 Gain on Sale of Investments (3,000) Dividend Income ( 15,000) 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 Tax Payable (2,000) (4,000) Net cash provided by Operating Activities 86,000 Cash Flows from Investing Activities Proceeds from Sale of Long Term Investments 60,000 Proceeds from Sale of Equipment 14,000 Dividend Income 15,000 Cash paid for purchase of Land (90,000) Cash paid for improvement of Building (95,000) Net cash used in Investing Activities (96,000) Cash Flows from Financing Activities Proceeds from issuance of Common Stock 24,000 Proceeds from issuance of Bonds Payable 30,000 Dividends paid (50,000) Net cash flows fro Financing Activities 4,000 Decrease in Cash and Cash Equivalents (6,000) Cash and Cash Equivalents, Beginning 25,000 Cash and Cash Equivalents, Ending 19,000