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:

19X5 19X4 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, 19X5

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 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.