Question #3 (20 marks)

The following information is taken from the operating section of the statement of cash flows (Direct Method) of DISTAFF & SPEAR Inc.:

Cash collections from customers

$58,000

Cash payments to suppliers for purchases

26,000

Cash payments for operating expenses

20,000

Cash payments for current period income taxes

9,000

The following information is obtained from the income statement of DISTAFF & SPEAR Inc.:

Depreciation expense

$9,000

Gain on disposition of equipment

4,000

Amortization of intangibles

2,500

In addition, the following information is obtained from the balance sheets of DISTAFF & SPEAR Inc.:

Increase in A/R

$6,750

Increase in inventory

6,750

Increase in A/P (related to purchases)

4,000

Decrease in accrued liability (related to operating expenses)

4,450

Decrease in tax payable

2,000

Required:

a.Prepare the income statement for the current year (12 marks)

b.Prepare CFO using the INDIRECT method (8 marks)