Question

Statement of Cash Flows (Indirect Method) The Rainbow Company's income statement and comparative balance sheets as of December 31 1 of 2013 and 2012 follow: RAINBOW COMPANY Income Statement For the Year Ended December 31, 2013 Sales Revenue $825,000 Dividend Income 16,500 841,500 Cost of Goods Sold $484,000 Wages and Other Operating Expenses 143,000 Depreciation Expense 42,900 Patent Amortization Expense 7,700 Interest Expense 14,300 Income Tax Expense 48,400 Loss on Sale of Equipment 5,500 Gain on Sale of Investments (11,000) 734,800 Net Income $106,700

Answer 1

a)
Cash and Cash equivalents,December 31,2013	$    20,900.00
Cash and Cash equivalents,December 31,2012	$    27,500.00
Change in Cash in 2013	$      6,600.00	Decrease
b)
RAINBOW COMPANY
Statement of Cash Flows (Indirect Method)
For Year Ended December 31, 2013
Cash flows from operating activities
Net income	$  106,700.00
Add (deduct) items to convert net income to cash basis
Depreciation	$    42,900.00
Patent amortization	$      7,700.00
Loss on sale of equipment	$      5,500.00
Gain on sale of investments	$   (11,000.00)
Accounts receivable increase	$   (11,000.00)
Inventory increase	$   (28,600.00)
Prepaid expenses increase	$     (4,400.00)
Accounts payable increase	$      4,400.00
Interest payable increase	$      1,100.00
Income tax payable decrease	$     (2,200.00)
Net cash provided by operating activities		$         111,100.00
Cash flows from investing activities:
Sale of investments	$    66,000.00
Purchase of land	$   (99,000.00)
Improvements to building	$ (104,500.00)
Sale of equipment	$    15,400.00
Net cash used by investing activities		$       (122,100.00)
Cash flows from financing activities:
Issuance of bonds payable	$    33,000.00
Issuance of common stock	$    26,400.00
Payment of dividends	$   (55,000.00)
Net cash provided by financing activities		$             4,400.00
Net decrease in cash and cash equivalents		$           (6,600.00)
Cash and cash equivalents at beginning of year		$           27,500.00
Cash and cash equivalents at end of year		$           20,900.00
Noncash investing and financing activities:
Issuance of preferred stock to acquire patent

20900 27500 =B4-B3 Decrease 106700 2 a) 3 Cash and Cash equivalents, December 31, 2013 Cash and Cash equivalents, December 31,2012 Change in Cash in 2013 6 b) 7 RAINBOW COMPANY 8 Statement of Cash Flows (Indirect Method) 9 For Year Ended December 31, 2013 10 Cash flows from operating activities 11 Net income 12 Add (deduct) items to convert net income to cash basis 13 Depreciation 14 Patent amortization 15 Loss on sale of equipment 16 Gain on sale of investments 17 Accounts receivable increase 18 Inventory increase 19 Prepaid expenses increase 20 Accounts payable increase 21 Interest payable increase 22 Income tax payable decrease 23 Net cash provided by operating activities 24 Cash flows from investing activities: 25 Sale of investments 26 Purchase of land 27 Improvements to building 28 Sale of equipment 29 Net cash used by investing activities 30 Cash flows from financing activities: 31 Issuance of bonds payable 32 Issuance of common stock 33 Payment of dividends 34 Net cash provided by financing activities 35 Net decrease in cash and cash equivalents 36 Cash and cash equivalents at beginning of year 37 Cash and cash equivalents at end of year 38 Noncash investing and financing activities: 39 Issuance of preferred stock to acquire patent 42900 7700 5500 - 11000 =33000-44000 =84700-113300 =6600-11000 =22000-17600 =6600-5500 =8800-11000 =SUM(B11:122) 66000 =-(209000-110000) =385000-489500 15400 =SUM(B25:B28) =170500-137500 =3300*8 -55000 =SUM(B31:B33) =C23+C29+C34 27500 =C35+C36 40