Answer and Explanation:
The preparation of the cash flow statement using the direct method is presented below:
Redwood Inc.
Cash flow statement
For the year ended December 31, 2016
Cash flow from operating activities
Cash Received from Customers $1,940
Interest on investments $220
Less: Interest on debt -$320
Less: Income tax -$84
Less: Purchase of inventory -$1,000
Less: Operating expenses -$520
Net cash provided by operating activities $236
Cash flow from investing activities
Sale of land $120
Less: Purchase of equipment -$4,500
Net cash used by investing activities -$4,380
Cash flow from financing activities
Sale of common stock $640
Issuance of debt securities $2,040
Less: Debt principal reduction -$1,540
Less: Dividends on common stock -$220
Net cash provided by financing activities $920
Decrease in cash -$3,224
Add: Beginning cash balance $5,600
Ending cash balance $2,376
The items which shows in a positive sign indicates the cash inflow and the items which shows in a negative sign indicates the cash outflow and the same is to be considered
