Cash Flows from Operating Activities—Direct Method The income statement of Kodiak Industries Inc. for the current year ended June 30 is as follows: Sales $557,530 Cost of merchandise sold 316,570 Gross profit $240,960 Operating expenses: Depreciation expense $42,780 Other operating expenses 113,100 Total operating expenses 155,880 Income before income tax $85,080 Income tax expense 23,610 Net income $61,470 Changes in the balances of selected accounts from the beginning to the end of the current year are as follows: Increase/ Decrease* Accounts receivable (net) $12,360* Inventories 4,300 Prepaid expenses 4,120* Accounts payable (merchandise creditors) 8,790* Accrued expenses payable (operating expenses) 1,230 Income tax payable 2,950* 

a. Prepare the Cash Flows from the Operating Activities section of the statement of cash flows, using the direct method. 

Use the minus sign to indicate cash outflows, cash payments, decreases in cash, or any negative adjustments. Kodiak Industries Inc. Cash Flows from Operating Activities Section For the year ended on June 30 Cash flows from operating activities: $ $ Net cash flow from operating activities $ 

b. What does the direct method show about a company’s cash flows from operating activities that are not shown using the indirect method? 

With the cash received less the cash payments is the net cash flow from operating activities. Individual cash receipts and payments are reported in the Cash Flows from the Operating Activities section. The adjusts accrual-basis net income for revenues and expenses that do not involve the receipt or payment of cash to arrive at cash flows from operating activities.