Cash flows from operating activities—direct method The income statement of Booker T Industries Inc. for the current year ended June 30 is as follows:

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 511,000 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (290,500)

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 220,500 Operating expenses:

Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 39,200 Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,000 Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . (144,200)

Income before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 76,300 Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21,700)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54,600.

Changes in the balances of selected accounts from the beginning to the end of the current year are as follows:
Increase (Decrease)
Accounts receivable (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(11,760)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,920 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,780)
Accounts payable (merchandise creditors) . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,980)
Accrued expenses payable (operating expenses) . . . . . . . . . . . . . . . . . . . . . 1,260 Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,660)

a. Prepare the “Cash flows from operating activities” section of the statement of cash flows, using the direct method.

b. What does the direct method show about a company’s cash flows from operating activities that is not shown using the indirect method?
AppendixLO1