Reference no: EM13534240

Cash flows from operating activities-direct method

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

Sales		$273,600
Cost of merchandise sold		155,400
Gross profit		$118,200
Operating expenses:
Depreciation expense	$21,000
Other operating expenses	55,440
Total operating expenses		76,440
Income before income tax		$41,760
Income tax expense		11,580
Net income		$30,180

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)	$6,300*
Inventories	2,100
Prepaid expenses	2,040*
Accounts payable (merchandise creditors)	4,320*
Accrued expenses payable (operating expenses)	660
Income tax payable	1,440*

a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the direct method.

b. What does the direct method show about a company's cash flow from operating activities that is not shown using the indirect method?