Costco Wholesale Corporation (Indirect & Direct Cash Flows)

Costco Wholesale Corporationoperates more than 600 warehouse stores in the United States and abroad. The following items were in a slightly simplified version of the company's statement of cash flows for the fiscal year ending August 28,2011 (in millions):

Increase in merchandise inventories $ 642

Net income 1,542

Depreciation and amortization 855

Other noncash expenses 269

Increase in payables 804

Increase in other operating liabilities, net 451

Increase in receivables 81

The company's income statement showed (in millions):

Total revenues $88,915

Cost of merchandise 77,739

Operating expenses 8,737

Operating income 2,439

Other expenses, net 56

Income before income taxes 2,383

Income tax 841

Net income $ 1,542

1. Develop the statement of cash flows from operating activities using the indirect method.
2. Develop the statement of cash flows from operating activities using the direct method. Assume that all other expenses and income taxes were paid in cash, all operating liabilities relate to operating expenses, and that all depreciation and other noncash expenses are included in operating expenses.