1. 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:
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20X5 |
20X4 |
Increase / Decrease) |
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Current assets |
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Cash |
$55,400 |
$35,200 |
$20,200 |
|
|
Accounts receivable (net) |
83,800 |
88,000 |
-4,200 |
|
|
Inventory |
243,400 |
233,800 |
9,600 |
|
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Prepaid expenses |
25,400 |
24,200 |
1,200 |
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Current liabilities |
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Accounts payable |
$123,600 |
$140,600 |
($17,000) |
|
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Taxes payable |
43,600 |
49,200 |
-5,600 |
|
|
Interest payable |
9,000 |
6,400 |
2,600 |
|
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Accrued liabilities |
38,800 |
60,400 |
-21,600 |
|
|
Note payable |
44,000 |
44,000 |
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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.
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SIGN GRAPHICS INC. |
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Income Statement |
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for the Year Ended December 31, 20×5 |
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Sales |
$713,800 |
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Less: Cost of goods sold |
323,000 |
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Gross profit |
$390,800 |
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Less: Selling & administrative expenses |
$186,000 |
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Depreciation expense |
17,000 |
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Interest expense |
27,000 |
230,000 |
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Add: gain on sale of land |
$160,800 |
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|
21,800 |
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Income before taxes |
$182,600 |
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Income taxes |
36,800 |
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Net income |
$145,800 |
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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.