The income statement and other data of Dunbar Carpet Outlet, Inc., follow: Dunbar Carpet Outlet, Inc. Income statement For the Year Ended 2010 December 31
|
Sales |
$920,000 |
|
|
Cost of goods sold |
380,000 |
|
|
Gross margin |
$540,000 |
|
|
Operating expenses (other than depreciation) |
$140,000 |
|
|
Depreciation expense |
40,000 |
180,000 |
|
Net income |
$360,000 |
|
Changes in current assets (other than cash) and current liabilities during the year were:
|
Increase |
Decrease |
|
|
Accounts receivable |
$20,000 |
|
|
Merchandise inventory |
$16,000 |
|
|
Prepaid insurance |
8,000 |
|
|
Accounts payable |
28,000 |
|
|
Accrued liabilities payable |
4,000 |
|
Depreciation was the only noncash item affecting net income.
a. Prepare a working paper to calculate cash flows from operating activities under the direct method.
b. Prepare the cash flows from operating activities section of the statement of cash flows under the direct method.
c. Prove that the same cash flows amount will be obtained under the indirect method by preparing the cash flows from operating activities section of the statement of cash flows under the indirect method. You need not prepare a working paper.