The income statement of Hanalei International Inc. contained the following condensed information:

Hanalei?s balance sheet contained the following comparative data at December 31:

Additional information: Accounts payable relate to operating expenses.

Instructions

Assuming Hanalei reports under ASPE, prepare the operating activities section of the cash flow statement using either

(a) The indirect method or

(b) The direct method, as assigned by your instructor.

Taking It Further

What are the advantages and disadvantages of the direct method of determining cash provided (used) by operating activities?

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HANALEI INTERNATIONAL INc. Income Statement Year Ended December 31, 2021 Service revenue $480,000 Operating expenses Depreciation expense Loss on sale of equipment $245,000 35,000 25,000 305,000 Profit from operations Other revenues and expenses 175,000 Interest expense 10,000 Profit before income taxes 165,000 Income tax expense 41,250 Profit $123,750 2021 2020 Accounts receivable Prepaid insurance Accounts payable Interest payable Income tax payable Unearned revenue $52,000 5,000 30,000 2,000 3,000 $40,000 8,000 41,000 1,250 4,500 8,000 12,000