Cash flow information: Direct and indirect methods
The comparative year-end balance sheets of Sign Graphics, Inc., revealed the following activity in the company’s current accounts:
|
20X5 |
20X4 |
Increase / (Decrease) |
|
|
Current assets |
|||
|
Cash |
55,400 |
35,200 |
20,200 |
|
Accounts receivable (net) |
83,800 |
88,000 |
(4,200) |
|
Inventory |
243,400 |
233,800 |
9,600 |
|
Prepaid expenses |
25,400 |
24,200 |
1,200 |
|
Current liabilities |
|||
|
Accounts payable |
123,600 |
140,600 |
(17,000) |
|
Taxes payable |
43,600 |
49,200 |
(5,600) |
|
Interest payable |
9,000 |
6,400 |
2,600 |
|
Accrued liabilities |
38,800 |
60,400 |
(21,600) |
|
Note payable |
44,000 |
– |
44,000 |
The accounts payable were for the purchase of merchandise. Prepaid expenses and accrued liabilities relate to the firm’s selling and administrative expenses. The company’s condensed income statement follows.
SIGN GRAPHICS INC.
Income Statement
for the Year Ended December 31, 20×5
|
Sales |
713,800 |
|
|
Less: Cost of goods sold |
323,000 |
|
|
Gross profit |
390,800 |
|
|
Less: Selling & administrative expenses |
186,000 |
|
|
Depreciation expense |
17,000 |
|
|
Interest expense |
27,000 |
230,000 |
|
160,800 |
||
|
Add: gain on sale of land |
21,800 |
|
|
Income before taxes |
182,600 |
|
|
Income taxes |
36,800 |
|
|
Net income |
145,800 |
Other data:
1. Long-term investments were purchased for cash at a cost of $74,600.
2. Cash proceeds from the sale of land totaled $76,200.
3. Store equipment of $44,000 was purchased by signing a short-term note payable. Also, a $150,000 telecommunications system was acquired by issuing 3,000 shares of preferred stock.
4. A long-term note of $49,400 was repaid.
5. Twenty thousand shares of common stock were issued at $5.19 per share.
6. The company paid cash dividends amounting to $128,600.
Instructions:
a. Prepare the operating activities section of the company’s statement of cash flows, assuming use of:
1. The direct method.
2. The indirect method.
b. Prepare the investing and financing activities sections of the statement of cash flows.