Question

The Diversified Portfolio Corporation provides investment advice to customers. A condensed income statement for the year ended December 31, 2018, appears below:

Service revenue	$	1,060,000
Operating expenses		780,000
Income before income taxes		280,000
Income tax expense		84,000
Net income	$	196,000

The following balance sheet information also is available:

	12/31/18			12/31/17
Cash	$	375,000		$	78,000
Accounts receivable		136,000			108,000
Accounts payable (operating expenses)		86,000			68,000
Income taxes payable		18,000			31,000

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

1. Common stock was issued for $116,000 in cash.
2. Long-term investments were sold for $58,000 in cash. The original cost of the investments also was $58,000.
3. $88,000 in cash dividends was paid to shareholders.
4. The company has no outstanding debt, other than those payables listed above.
5. Operating expenses include $38,000 in depreciation expense.

Required:
1. Prepare a statement of cash flows for 2018 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 2018 statement of cash flows using the indirect method.

Answer 1