Operating Activities Section—Direct Method The following account balances for the noncash current assets and current liabilities of Labrador Company are available:

December 31 2010 2009 Accounts receivable $ 4,000 $ 6,000 Inventory 32,000 25,000 Offi ce supplies 7,000 10,000 Accounts payable 7,500 4,500 Salaries and wages payable 1,500 2,500 Interest payable 500 1,000 Income taxes payable 4,500 3,000.

In addition, the income statement for 2010 is as follows:
2010 Sales revenue $100,000 Cost of goods sold 75,000 Gross profi t $ 25,000 General and administrative expense $ 8,000 Depreciation expense 3,000 Total operating expenses $ 11,000 Income before interest and taxes $ 14,000 Interest expense 3,000 Income before tax $ 11,000 Income tax expense 5,000 Net income $ 6,000 Required 1. Prepare the Operating Activities section of the statement of cash fl ows using the direct method.
2. What does the use of the direct method reveal about a company that the indirect method does not?AppendixLO1