Problem: The following account balances are for the noncash current assets and current liabilities of Wynn Bicycle Company for 2008 and 2009.
|
December 31
|
|
|
2008
|
2009
|
|
Accounts receivable
|
$4,000
|
$6,000
|
|
Inventory
|
30,000
|
20,000
|
|
Office supplies
|
5,000
|
8,000
|
|
Accounts payable
|
10,000
|
7,000
|
|
Salaries and wages payable
|
2,500
|
4,000
|
|
Interest payable
|
1,500
|
2,500
|
|
Income taxes payable
|
5,500
|
2,500
|
In addition, the income statement for 2009 is as follows:
|
Sales revenue
|
$110,000
|
|
Costs of goods sold
|
85,000
|
|
Gross profit
|
$25,000
|
|
General and administrative expense
|
$9,000
|
|
Depreciate expense
|
2,000
|
|
Total operating expenses
|
$11,000
|
|
Income before interest and taxes
|
$14,000
|
|
Interest expense
|
2,000
|
|
Income before tax
|
$12,000
|
|
Income tax expense
|
4,800
|
|
Net income
|
$7,200
|
Required:
Q1. Prepare the Operating Activities section of the statement of cash flows using the indirect method.
Q2. What does the use of the direct method reveal about a company that the indirect method does not?