The income statement and other data of Dunbar Carpet Outlet, Inc., follow: Dunbar Carpet Outlet, Inc. Income statement For the Year Ended 2010 December 31 Sales $920,000 Cost of goods sold 380,000 Gross margin $540,000 Operating expenses (other than depreciation) $140,000 Depreciation expense 40,000 180,000 Net income $360,000 Changes in current assets (other than cash) and current liabilities during the year were: Increase Decrease Accounts receivable $20,000 Merchandise inventory $16,000 Prepaid insurance 8,000 Accounts payable 28,000 Accrued liabilities payable 4,000 Depreciation was the only noncash item affecting net income.

a. Prepare a working paper to calculate cash flows from operating activities under the direct method.

b. Prepare the cash flows from operating activities section of the statement of cash flows under the direct method.

c. Prove that the same cash flows amount will be obtained under the indirect method by preparing the cash flows from operating activities section of the statement of cash flows under the indirect method. You need not prepare a working paper.