How do I prepare a statement of cash flows using the indirect method? Statement of Cash Flows (Indirect Method)The Rainbow Company's income statement and comparative balance sheets as of December 31 of 2013 and 2012 follow:RAINBOW COMPANYIncome StatementFor the Year Ended Decemnber 31, 2013Sales Revenue$975,000Dividend Income19,500994,500Cost of Goods Sold$572,000Wages and Other Operating Expenses 169,000Depreciation Expense50.700Patent Amortization Expense9,100Interest Expense16,900Income Tax Expense57,200Loss on Sale of Equipment6,500Gain on Sale of Investments(13.000) 868,400Net Income$126,100 E BusinessCourseReturn to courseO Support DashboardRAINBOW COMPANYBalance SheetsDec. 31, 2013 Dec. 31, 2012AssetsCash and Cash Equivalents$24,700$32,500Accounts Receivable52,00039,000Inventory133,900100,100Prepaid Expenses13,0007,800Long-term Investments-Available for SaleFair Value Adjustment to Investments65,0009,100Land247,000130,000Buildings578,500455,000Accumulated Depreciation- Buildings(118,300)(97,500)EquipmentAccumulated Depreciation-Equipment232,700292,500(54,600)(59,800)Patents65,00041,600Total Assets$1,173,900$1,015,300Liabilities and Stockholders' EquityAccounts Payable$26,000$20,800Interest Payable7,8006,500Income Tax Payable10,40013,000Bonds Payable201,500162,500Preferred Stock ($100 par value)130,00097,500Common Stock ($5 par value)492,700473,200Paid-in-capital in Excess of Par Value-Common172,900161,200Retained Earnings132,60071,500Unrealized Gain on Investments9,100Total Liabilities and Stockholders' Equity$1,173,900$1,015,300During the year, the following transactions occurred:1. Sold long-term investments costing $65,000 for $78,000 cash. Unrealized gains totaling $9,100 related to these investments had been recorded in earlier years. At year-end, the fair value adjustment and unrealized gain account balances were eliminated.2. Purchased land for cash.3. Capitalized an expenditure made to improve the building.4. Sold equipment for $18,200 cash that originally cost $59,800 and had $35,100 accumulated depreciation.5. Issued bonds payable at face value for cash.6. Acquired a patent with a fair value of $32,500 by issuing 325 shares of preferred stock at par value.7. Declared and paid a $65,000 cash dividend.8. Issued 3,900 shares of common stock for cash at $8 per share.9. Recorded depreciation of $20,800 on buildings and $29,900 on equipment.

Question

Accepted Answer

Statement of cash flow (CFS) refers to a financial statement which shows the flows of cash and cash…