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.