Indirect method.

Additional information: 1.) Operating expenses are composed of: Depreciation $238,000; Salaries $588,000; Loss on Sale of Equipment $23,000; other operating expenses $76,000 2.) Prepaid insurance is related to the other operating expenses. 3.) Equipment was purchased during the year for $276,000 cash. 4.) Equipment was sold for cash during the year. The original cost of the equipment was $344,000, and the accumulated depreciation was $280,000. 5.) Dividends were declared and paid during the year