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, 20x5 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 Add: gain on sale of land $160,800 21,800 Income before taxes $182,600 Income taxes 36,800 Net income $145,800 Other data: 1. Long-term investments were purchased for cash at a cost of $74,600.
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.