Question

Problem 4-9 (Algo) Statement of cash flows [LO4-8]

The Diversified Portfolio Corporation provides investment advice to customers. A condensed income statement for the year ended December 31, 2021, appears below:

Service revenue	$	1,080,000
Operating expenses		790,000
Income before income taxes		290,000
Income tax expense		72,500
Net income	$	217,500

The following balance sheet information also is available:

	12/31/2021			12/31/2020
Cash	$	399,500		$	79,000
Accounts receivable		138,000			109,000
Accrued liabilities (for operating expenses)		88,000			69,000
Income taxes payable		19,000			33,000

In addition, the following transactions took place during the year:

1. Common stock was issued for $118,000 in cash.
2. Long-term investments were sold for $59,000 in cash. The original cost of the investments also was $59,000.
3. $89,000 in cash dividends was paid to shareholders.
4. The company has no outstanding debt, other than those payables listed above.
5. Operating expenses include $39,000 in depreciation expense.

Required:
1. Prepare a statement of cash flows for 2021 for the Diversified Portfolio Corporation. Use the direct method for reporting operating activities.
2. Prepare the cash flows from operating activities section of Diversified’s 2021 statement of cash flows using the indirect method.

Answer 1

Indirect