The accounting records of Pepperell Pharmaceuticals, Inc., reveal the following:

Requirement

1. Prepare cash flows from operating activities using the direct method. Also evaluate Pepperell’s operating cash flow. Give the rationale for your evaluation.

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$40,000 Payment of salaries Net income... $ 31,000 and wages... Payment of income tax.... 11,000 . Depreciation expense Collection of dividend 21,000 Increase in current 4,000 revenue. liabilities . Payment of interest... 23,000 19,000 Cash sales.. Increase in current assets 20,000 Loss on sale of land Acquisition of land with cash.. . other than cash. 26,000 4,000 Payment of dividends.. 3,000 25,000 Collection of accounts Payment of accounts receivable... payable 117,000 55,000