The income statement and a partial balance sheet for Jefferson Company is presented below. Prepare the operating activities section of the statement of cash flows using the indirect method.

Jefferson Company

Income Statement

For the Year Ended December 31, 2006

Sales $500,000

Cost of goods sold 390,000

Gross profit $110,000

Operating expenses:

Salaries $70,000

Depreciation expense 20,000

Miscellaneous 10,000 100,000

Net income $10,000

Jefferson Company

Partial Balance Sheet

December 31, 20X6

12/31/2006 12/31/2005

Cash $80,000 $65,000

Accounts receivable (net) 57,000 50,000

Inventories 102,000 86,000

Prepaid expenses 4,500 4,000

Accounts payable (merchandise) 58,000 51,000

Salaries payable 7,500 6,000