Indirect method.

Additional information: 1.) Operating expenses are composed of: Depreciation $1,800; Salaries $12,000; Loss on Sale of Equipment $400; other operating expenses $800. 2.) Other operating expenses are cash expenses. 3.) Equipment was purchased during the year for $7,000 cash. 4.) Equipment was sold for cash during the year. The original cost of the equipment was $3,000, and the accumulated depreciation was $1,000. 5.) Dividends were declared and paid during the year