Problem 14-14A (Algo) The direct versus the indirect method of determining cash flow from operating activities LO 14-1, 14-2

Finch Brands, Inc., presents its statement of cash flows using the indirect method. The following accounts and corresponding balances were drawn from Finchs Year 2 and Year 1 year-end balance sheets:

Account Title	Year 2			Year 1
Accounts receivable	$	23,100		$	27,100
Merchandise inventory		57,300			50,600
Prepaid insurance		16,500			24,100
Accounts payable		25,100			18,900
Salaries payable		4,750			4,000
Unearned service revenue		850			2,800

The Year 2 income statement is shown below:

Income Statement
Sales	$	603,000
Cost of goods sold		(372,000	)
Gross margin		231,000
Service revenue		5,000
Insurance expense		(40,000	)
Salaries expense		(141,000	)
Depreciation expense		(4,900	)
Operating income		50,100
Gain on sale of equipment		4,800
Net income	$	54,900

Required

1. Prepare the operating activities section of the statement of cash flows using the direct method.

2. Prepare the operating activities section of the statement of cash flows using the indirect method.