E5.16

(Preparation of Partial Statement of Cash FlowsOperating Activities)

(LO 8, 9) The statement of income of Kneale Transport Inc. for the year ended December 31, 2020, reported the following condensed information:

Kneale Transport Inc. Year Ended December 31, 2020 Statement of Income
Service revenue		$545,000
Operating expenses		370,000
Income from operations		175,000
Other revenues and expenses
Gain on disposal of equipment	$25,000
Interest expense	10,000	15,000
Income before income tax		190,000
Income tax		42,000
Net income		$148,000

Kneale's statement of financial position included the following comparative data at December 31:

	2020	2019
Accounts receivable	$50,000	$60,000
Prepaid insurance	8,000	5,000
Accounts payable	30,000	41,000
Interest payable	2,000	750
Income tax payable	8,000	4,500
Unearned revenue	10,000	14,000

Additional information:

Operating expenses include $70,000 in depreciation expense. The company follows IFRS. Assume that interest is treated as an operating activity for purposes of the statement of cash flows.

Instructions

a.

Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2020, using the

• 1.indirect method and

• 2.direct method.

b.

From the perspective of an external user of Kneale Transport's financial statements, discuss the usefulness of the statement of cash flows prepared using either the indirect or the direct method.