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Sign Graphics 55400

Price: $2.50


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:



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.
2. 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.

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