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

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

Account Title	Year 2			Year 1
Accounts receivable	$	22,700		$	29,900
Merchandise inventory		58,700			50,200
Prepaid insurance		17,000			25,400
Accounts payable		24,500			19,500
Salaries payable		4,750			4,000
Unearned service revenue		900			2,700

The Year 2 income statement is shown below:

Income Statement
Sales	$	613,000
Cost of goods sold		(374,000	)
Gross margin		239,000
Service revenue		5,200
Insurance expense		(39,000	)
Salaries expense		(158,000	)
Depreciation expense		(4,100	)
Operating income		43,100
Gain on sale of equipment		4,700
Net income	$	47,800

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.

Required A Required B Prepare the operating activities section of the statement of cash flows using the direct method. (Cash outflows should be indicated with minus sign.) VERNON BRANDS, INC Statement of Cash Flows (Operating Activities) For the Year Ended December 31, Year 2 Cash flows from operating activities Cash collections from customers for sales Cash collections from customers for services Cash payments for $ Net cash flow from operating activities 0