Green Brands, Inc. (GBI) presents its statement of cash flows using the indirect method. The following accounts and corresponding balances were drawn from GBI’s 2017 and 2016 year-end balance sheets:
Account Title 2017 2016
Accounts receivable……………………………… $48,000……………… $52,000
Merchandise inventory……………………………. 78,000………………… 72,000
Prepaid insurance………………………………….. 24,000……………….. 32,000
Accounts payable………………………………….. 31,000……………….. 28,000
Salaries payable……………………………………… 8,200………………… 7,800
Unearned service revenue…………………………… 2,400………………… 3,600
The 2017 income statement is shown below:
Income Statement
Sales…………………………………………………. $ 720,000
Cost of goods sold…………………………………… (398,000)
Gross margin……………………………………………. 322,000
Service revenue……………………………………………. 6,000
Insurance expense……………………………………… (36,000)
Salaries expense……………………………………….. (195,000)
Depreciation expense…………………………………… (12,000)
Operating income………………………………………… 85,000
Gain on sale of equipment………………………………… 4,500
Net income……………………………………………… $ 89,500
Required
a. Prepare the operating activities section of the statement of cash flows using the direct method.
b. Prepare the operating activities section of the statement of cash flows using the indirect method.
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