Question

9.

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

Service revenue	$	1,100,000
Operating expenses		800,000
Income before income taxes		300,000
Income tax expense		60,000
Net income	$	240,000

The following balance sheet information also is available:

	12/31/18			12/31/17
Cash	$	425,000		$	80,000
Accounts receivable		140,000			110,000
Accounts payable (operating expenses)		90,000			70,000
Income taxes payable		20,000			35,000

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

Common stock was issued for $120,000 in cash.

Long-term investments were sold for $60,000 in cash. The original cost of the investments also was $60,000.

$90,000 in cash dividends was paid to shareholders.

The company has no outstanding debt, other than those payables listed above.

Operating expenses include $40,000 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.

DIVERSIFIED PORTFOLIO CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2018
Cash flows from operating activities
Collections from customers
		$0
		0
		0
		$0

2. Prepare the cash flows from operating activities section of Diversified’s 2018 statement of cash flows using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

	DIVERSIFIED PORTFOLIO CORPORATION Statement of Cash Flows (Partial) For the Year Ended December 31, 2018 $0

Answer 1