Bannack Corp. is in the process of preparing its statement of cash flows for the year ended June 30, 2017. An income statement for the year and comparative balance sheets are as follows:

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 2017 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.

Transcribed Image Text:

For the Year Ended June 30, 2017 Cost of goods sold 240,000 $160,000 牝40,000 Gross profit General and administrative expenses Depreciation expense Loss on sale of plant assets Total expenses and losses Income before interest and taxes Interest expense O00 $130,000 S 30,000 Income before taxes Income tax expense 15,000 Net income 10,000 June 30 2017 2016 25,000 40,000 Cash Accounts receivable nventory Prepaid rent 69,000 50,000 18,000 $ 182,000 177,000 60,000 150,000 500,000 75,000 Total current assets Plant and equipment Accumulated depreciation 310.000 250,000 $325,000 400,000 507,000 577000 $145,000 140,000 45,000 Total long-termassets Total assets Accounts payable Other accrued liabilities Income taxes payable 10,000 Total current liabilities Long-term bank loan payable Common stock Retained eamings 200,000 200,000 75,000 150,000 $100,000 100,000 127,000 $232,000 227,000 Total stockholders' equity Total iabilities and stockholders