Cash flows from operating activities (indirect and direct methods).

Presented below is the income statement of Cowan, Inc.:

Sales revenue $380,000

Cost of goods sold 225,000

Gross profit $155,000

Operating expenses 85,000

Income before income taxes 70,000

Income taxes 28,000

Net income $ 42,000

In addition, the following information related to net changes in working capital is presented:

Debit Credit

Cash $12,000

Accounts receivable 20,000

Inventories $19,400

Salaries payable (operating expenses) 8,000

Accounts payable 14,000

Income taxes payable 3,000

The company also indicates that depreciation expense for the year was $16,700 and that the deferred tax liability account increased $2,600.

Instructions

Prepare a schedule computing the net cash flow from operating activities that would be shown on a statement of cash flows:

(a) using the indirect method.

(b) using the direct method.