cash flow information direct and indirect methods the comparative year end balance s 502381 | Homework Solutions

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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(Increase / Decrease)

Current assets Cash




Accounts receivable (net)







Prepaid expenses




Current liabilities Accounts payable




Taxes payable



Interest payable




Accrued liabilities



Note payable



The accounts payable were for the purchase of merchandise. Prepaid expenses and accrued liabilities related 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, 19X5



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 Total operating expenses: 230,000 $160,800 Add: Gain on sale of land 21,800 Income before taxes Income taxes $182,600 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.

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