1. Which of the following is true of the direct method for preparing a statement of cash flows?

1. The direct method computes the operating cash flows by adjusting the net income for items that do not affect cash flows.
2. The statement of cash flows is usually less accurate when prepared by the direct method.
3. The direct method adjusts the net income to determine the net cash flows from operating activities.
4. The direct method requires that a supplementary schedule reconciling the net income with the net cash from operating activities be provided with the statement of cash flows.

2. For the year 20X1, Sniper Inc. reported sales of $175,000 on its income statement. During the year, accounts receivable decreased by $45,000 and accounts payable decreased by $30,000. The cost of goods sold for the year was $200,000. The company recorded a total depreciation of $15,000. Assuming that the company uses the direct method to determine the net cash flows from operating activities on the statement of cash flows, calculate the cash flows from operating activities.

1. Inflow of $15,000
2. Outflow of $10,000
3. Inflow of $10,000
4. Outflow of $15,000