Cash flow information: Direct and indirect methods The comparative year-end balance sheets of Sign Graphics, Inc., revealed the following activity...
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
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20X4
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Increase/ Decrease)
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Current assets
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Cash
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$55,400
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$35,200
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$20,200
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Accounts receivable (net)
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83,800
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88,000
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-4,200
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Inventory
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243,400
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233,800
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9,600
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Prepaid expenses
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25,400
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24,200
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1,200
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Current liabilities
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Accounts payable
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$123,600
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$140,600
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($17,000)
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Taxes payable
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43,600
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49,200
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-5,600
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Interest payable
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9,000
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6,400
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2,600
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Accrued liabilities
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38,800
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60,400
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-21,600
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Note payable
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44,000
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-
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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, 20x5
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Sales
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$713,800
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Less: Cost of goods sold
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323,000
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Gross profit
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$390,800
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Less: Selling & administrative expenses
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$186,000
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Depreciation expense
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17,000
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Interest expense
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27,000
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230,000
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Add: gain on sale of land
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$160,800
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21,800
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Income before taxes
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$182,600
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Income taxes
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36,800
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Net income
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$145,800
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Other data:
- Long-term investments were purchased for cash at a cost of $74,600.
- Cash proceeds from the sale of land totaled $76,200.
- 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.
- A long-term note of $49,400 was repaid.
- Twenty thousand shares of common stock were issued at $5.19 per share.
- The company paid cash dividends amounting to $128,600.
Requirements:
1. Prepare the operating activities section of the company's statement of cash flows, assuming use of:
- The direct method.
- The indirect method.
2. Prepare the investing and financing activities sections of the statement of cash flows.