The Diversified Portfolio Corporation provides investment adviceto customers. A condensed income statement for the year endedDecember 31, 2018, appears below:
| | |
| Service revenue | $ | 1,220,000 |
| Operating expenses | | 900,000 |
| Income before income taxes | | 320,000 |
| Income tax expense | | 96,000 |
| Net income | $ | 224,000 |
|
The following balance sheet information also isavailable:
| 12/31/18 | | 12/31/17 |
| Cash | $ | 439,000 | | $ | 90,000 |
| Accounts receivable | | 160,000 | | | 120,000 |
| Accounts payable (operating expenses) | | 110,000 | | | 80,000 |
| Income taxes payable | | 30,000 | | | 55,000 |
|
In addition, the following transactions took place during theyear:
- Common stock was issued for $140,000 in cash.
- Long-term investments were sold for $70,000 in cash. Theoriginal cost of the investments also was $70,000.
- $100,000 in cash dividends was paid to shareholders.
- The company has no outstanding debt, other than those payableslisted above.
- Operating expenses include $50,000 in depreciationexpense.
Required:
1. Prepare a statement of cash flows for 2018 forthe Diversified Portfolio Corporation. Use the direct method forreporting operating activities.
2. Prepare the cash flows from operatingactivities section of Diversified’s 2018 statement of cash flowsusing the indirect method.
