Chapman Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company. The comparative balance sheet and income statement for Chapman as of May 31, 2025, are as follows. The company is preparing its statement of cash flows.

The following is additional information concerning Chapman’s transactions during the year ended May 31, 2025.

1. All sales during the year were made on account.

2. All merchandise was purchased on account, comprising the total accounts payable account.

3. Plant assets costing $98,000 were purchased by paying $28,000 in cash and issuing 7,000 shares of stock.

4. The “other expenses” are related to prepaid items.

5. All income taxes incurred during the year were paid during the year.

6. In order to supplement its cash, Chapman issued 2,000 shares of common stock at par value.

7. Cash dividends of $105,000 were declared and paid at the end of the fiscal year.

Instructions

a. Compare and contrast the direct method and the indirect method for reporting cash flows from operating activities.

b. Prepare a statement of cash flows for Chapman Company for the year ended May 31, 2025, using the direct method. Be sure to support the statement with appropriate calculations. (A reconciliation of net income to net cash provided is not required.)

c. Using the indirect method, calculate only the net cash flow from operating activities for Chapman Company for the year ended May 31, 2025.

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Current assets Cash Accounts receivable Inventory Prepaid expenses Total current assets Plant assets Plant assets Less: Accumulated depreciation-plant assets Net plant assets Total assets Current liabilities Chapman Company Comparative Balance Sheet As of May 31 Accounts payable Salaries and wages payable Interest payable Total current liabilities Long-term debt Bonds payable Total liabilities 2025 $28,250 75,000 220,000 9,000 332,250 2024 $20,000 58,000 250,000 70,000 267,250 7,000 335,000 600,000 502,000 150,000 125,000 450,000 377,000 $782,250 $712,000 $123,000 $115,000 47,250 72,000 27,000 25,000 197,250 212,000 100,000 312,000