Question

The Diversified Portfolio Corporation provides investment advice to customers. A condensed income statement for the year ended December 31, 2021, appears below: Service revenue $ 1,120,000 Operating expenses 810,000 Income before income taxes 310,000 Income tax expense 77,500 Net income $ 232,500 The following balance sheet information also is available: 12/31/2021 12/31/2020 Cash $ 420,500 $ 81,000 Accounts receivable 142,000 111,000 Accrued liabilities (for operating expenses) 92,000 71,000 Income taxes payable 21,000 37,000 In addition, the following transactions took place during the year: Common stock was issued for $122,000 in cash. Long-term investments were sold for $61,000 in cash. The original cost of the investments also was $61,000. $91,000 in cash dividends was paid to shareholders. The company has no outstanding debt, other than those payables listed above. Operating expenses include $41,000 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.

Prepare a statement of cash flows for 2021 for the Diversified Portfolio Corporation. Use the direct method for reporting operating activities. (Amounts to be deducted should be indicated with a minus sign.)

Prepare the cash flows from operating activities section of Diversified’s 2021 statement of cash flows using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Diversified Portfolio Corporation
Cash Flow Statement
As on 31st December 2021
Cash Flow from Operating Activities (Direct Method)
Particulars	Amount	Amount
Receipts from Customers (111,000+1,120,000-142,000)	1,089,000
Payments to Suppliers (810,000-41,000+71,000-92,000)	-748,000
Income Tax expense (37,000+77,500-21,000)	-93,500
Cash Flow from Operating Activities		247,500
Cash Flow from Investing Activities
Sale of Long Term Investments	61,000
Cash Flow from Investing Activities		61,000
Cash Flow from Financing Activities
Issue of Common Stock	122,000
Payment of Dividends	-91,000
Cash Flow from Financing Activities		31,000
Net Increase / -Decrease in Cash Flow		339,500
+ Opening Cash		81,000
Closing Cash		420,500

Diversified Portfolio Corporation
Cash Flow Statement
As on 31st December 2021
Cash Flow from Operating Activities (Indirect Method)
Particulars	Amount
Net Income	232,500
Adjustments to reconcile net income to net cash provided by operating activities
Add: Depreciation	41,000
-Increase / Decrease in Current Assets
Increase in Accounts Receivable (111,000-142,000)	-31,000
Increase / -Decrease in Current Liabilities
Increase in Accrued Liabilities (92,000-71,000)	21,000
-Decrease in Income Tax Payable (21,000-37,000)	-16,000
Cash Flow from Operating Activities	247,500
Cash Flow from Investing Activities
Sale of Long Term Investments	61,000
Cash Flow from Investing Activities	61,000
Cash Flow from Financing Activities
Issue of Common Stock	122,000
Payment of Dividends	-91,000
Cash Flow from Financing Activities	31,000
Net Increase / -Decrease in Cash Flow	339,500
+ Opening Cash	81,000
Closing Cash	420,500