Bannack Corp. is in the process of preparing its statement of cash flows for the year ended June 30, 2012. An income statement for the year and comparative balance sheets are as follows:

For the Year Ended

June 30, 2012

Sales revenue............................................................$400,000

Cost of goods sold.......................................................240,000

Gross profit..............................................................$160,000

General and administrative expenses.................................$ 40,000

Depreciation expense......................................................80,000

Loss on sale of plant assets................................................10,000

Total expenses and losses..............................................$130,000

Income before interest and taxes.......................................$ 30,000

Interest expense ............................................................15,000

Income before taxes......................................................$ 15,000

Income tax expense .........................................................5,000

Net income ...............................................................$ 10,000

Dividends of $5,000 were declared and paid during the year. New plant assets were purchased during the year for $125,000 in cash. Also, land was sold for cash at its book value. Plant assets were sold during the year for $20,000 in cash. The original cost of the assets sold was $50,000, and their book value was $30,000. A portion of the bank loan was repaid.
Required
1. Prepare a statement of cash flows for 2012 using the direct method in the Operating Activities section.
2. Evaluate the following statement: Whether a company uses the direct or indirect method to report cash flows from operations is irrelevant because the amount of cash flow from operating activities is the same regardless of which method is used.

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June 30 2012 2011 Cash Accounts receivable Inventory Prepaid rent $ 25,000 40,000 69,000 50,000 18,000 $ 182,000 $177,000 S 60,000 150,000 500,000 (310,000) (250,000) $ 325,000 400,000 S507,000 $577,000 $145,000 140,000 45,000 15,000 $ 200,000 200,000 $ 75,000 150,000 $ 100,000 $100,000 127,000 $ 232,000 $227,000 S507,000 S577,000 80,000 75,000 2,000 Total current assets Land Plant and equipment Accumulated depreciation 575,000 Total long-term assets Accounts payable Other accrued liabilities Income taxes payable 50,000 5,000 Total current liabilities Long-term bank loan payable Common stock Retained earnings 132,000 Total stockholders' equity Total liabilities and stockholders' equity