Reference no: EM132570048
Question - Vernon Brands, Inc., presents its statement of cash flows using the indirect method. The following accounts and corresponding balances were drawn from Vernon's Year 2 and Year 1 year-end balance sheets:
Account Title Year 2 Year 1
Accounts receivable $22,300 $28,600
Merchandise inventory 57,500 48,100
Prepaid insurance 18,500 25,700
Accounts payable 25,100 19,600
Salaries payable 4,800 4,000
Unearned service revenue 1,000 2,900
The Year 2 income statement is shown below:
Income Statement
Sales $607,000
Cost of goods sold (369,000)
Gross margin 238,000
Service revenue 4,900
Insurance expense (40,000)
Salaries expense (152,000)
Depreciation expense (4,400)
Operating income 46,500
Gain on sale of equipment 3,800
Net income $50,300
Required -
1. Prepare the operating activities section of the statement of cash flows using the direct method.
2. Prepare the operating activities section of the statement of cash flows using the indirect method.
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