Textbook Problem

Cash flows from operating activities —direct method

The income statement of Booker T Industries Inc. for the current year ended June 30 is as follows:

Sales		$511,000
Cost of goods sold		290,500
Gross profit		$220,500
Operating expenses:
Depreciation expense	$ 39,200
Other operating expenses	105,000
Total operating expenses		144,200
Income before income tax		$ 76,300
Income tax expense		21,700
Net income		$ 54,600

Changes in the balances of selected accounts from the beginning to the end of the current year are as follows:

	Increase (Decrease)
Accounts receivable (net)	$(11,760)
Inventories	3,920
Prepaid expenses	(3,780)
Accounts payable (merchandise creditors)	(7,980)
Accrued expenses payable (operating expenses)	1,260
Income tax payable	(2,660)

1. A. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the direct method.
2. B. What does die direct method show about a company's cash flows from operating activities that is not shown using the indirect method.''