Preparing a Statement of Cash Flows (Indirect Method) Rainbow Company’s income s
ID: 2527301 • 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
Explanation / Answer
a)
b)
d)
Computation of current liabilities
a)
Change in Cash and Cash Equivalents 31-Dec-16 31-Dec-15 Assets Cash and Cash Equivalents $19,000 $25,000 Reduction ($6,000)