What did you find to be the most challenging part of the problem? Explain why.
The income statement for Kosinski Manufacturing Company contains the following condensed information.
KOSINSKI MANUFACTURING COMPANY
Income Statement For the Year Ended December 31, 2007
Revenues $6,583,000
Operating expenses, excluding depreciation $4,920,000
Depreciation expense 880,000 5,800,000
Income before income taxes 783,000
Income tax expense 353,000
Net income $ 430,000
Included in operating expenses is a $24,000 loss resulting from the sale of machinery for $270,000 cash. Machinery was purchased at a cost of $750,000. The following balances are reported on Kosinski's comparative balance sheet at December 31.
2007 2006
Cash $672,000 $130,000
Accounts receivable 775,000 610,000
Inventories 834,000 867,000
Accounts payable 521,000 501,000
Income tax expense of $353,000 represents the amount paid in 2007. Dividends declared and paid in 2007 totaled $200,000.
What are the most challenging parts about creating cash flow statements using the indirect/direct methods? Explain why.