In 2010, John Shields applied for the trademark RadioShield with the United States Patent and Trademark Office and was granted the trademark in November 2010. In addition to the filing fees of $375, Shields paid $2,500 to a lawyer who assisted him with the filing process. The following provides a summary of events for 2011:

1. On January 2, 2011, John Shields, together with three investors, established Radiation Shields (RS), Inc. RS Inc. issued 17,000,000 common shares to investors for $2 per share.

2. Also on January 2, 2011, RS Inc. issued an additional 3,000,000 shares which were given to John Shields in exchange for the trademark RadioShield. This trademark is viewed as a key success factor to the business, because of how well it capsulates the product RS Inc. wants to produce and sell.

3. On January 5, RS Inc. signed a one year licensing agreement with Chemicals, Inc. The licensing period begins February 1, 2011 and the annual fee of $3,000,000 was paid by RS Inc. in full (in cash).

4. RS Inc. contracted with a small, research-oriented chemical engineering company to find the optimal chemical additives and the correct air pressure to ensure the lacquer spray is fast drying and has a smooth and even finish. Towards the end of February 2011, the engineering company delivered the required specifications and several pre-production models and was paid a total of $2,000,000 in cash.

5. On February 10, RS Inc. purchased new machinery that will be used in the production of the RadioShields for $13,500,000 in cash. An additional $1,500,000 was paid for installation.

6. On February 23, RS Inc. paid $6,000,000 upon receiving a delivery of materials for use in the production of commercial RadioShields.

7. RS Inc. paid $400,000 for salaries to corporate officers and employees (for the January-June period).

8. On July 1, RS Inc. borrowed $6,000,000 from a bank. The annual interest rate is 10% and is paid semi-annually.

9. Additional materials (chemical components, cans, etc.) to be used in RadioShield production were purchased for a total of $3,000,000. Under the favorable terms obtained from its suppliers, RS Inc. will make no payments until February 2012.

10. During the six months ended December 31, 2011, the company paid $2,000,000 for insurance (for the July-December period) and other general expenses (e.g., utilities).

11. An additional $3,300,000 in cash was paid for corporate salaries and other corporate expenses (for the July-December period).

12. RS Inc. spent $2,000,000 in cash on advertising to help introduce the product. They initially started with radio and print advertising, but quickly realized those media didnt reach their main consumer target group. They managed to get a television commercial done in time to run just prior to the end of the year.

13. Towards the end of 2011, sales started to take off. RS Inc. sold and shipped a total of $23,000,000 of its products. As of the end of the year, a total of $9,600,000 of these sales had still not yet been collected. The largest single receivable was due from a reputable wireless service provider who purchased a substantial number of spray cans as part of a promotional campaign. Most of the other receivables were on transactions that have been made close to yearend, and are expected to be collected in January 2012.

14. On December 13, 2011, RS Inc. signed a contract with the organizer of the International Fair for Electronic Consumer Products 2012 (IFECP) for 100,000 units of RSs smaller spray cans, which are intended to be given away to visitors of the trade show. The selling price specified in the contract is $5 per unit. RS Inc. promised to deliver the units on March 10, 2012. IFECP has up to 30 days after delivery to pay for the spray cans.

15. At the end of the year RS Inc. paid $300,000 in interest on their bank loan.

16. RS Inc. received $200,000 in interest on its cash account.

The following additional information was gathered in the process of preparing RS Inc.s financial reports for 2011:

17. The licensing agreement with Chemical, Inc. is due to expire on January 31, 2012. As of December 31, 2011, RS Inc was still negotiating the terms of an extension of the licensing agreement.

18. As of December 31, 2011 there was still $900,000 worth of materials in the warehouse. There were no finished or partially finished RadioShields.

19. The machinery used in the production of RadioShields is expected to last for approximately five years (one year of which has already passed). RS Inc. does not expect the machinery to have any remaining value after five years.

20. The trademark RadioShield is initially valid for 10 years and may be renewed indefinitely for 10-year periods. The filing fee for a trademark renewal is $400. A valuation analysis conducted at the end of the year suggests that the value of the trademark has increased to approximately $10,000,000.

Q: a. Prepare a statement of cash flows for Radiation Shields using the direct method.

b. Prepare a statement of cash flows for Radiation Shields using the indirect method.