The income statement for Kosinski Inc. contains the following condensed information: KOSINSKI INC. Income Statement Year Ended December 31, 2020

Sales $6,583,000 Cost of goods sold 3,427,000 Gross profit 3,156,000 Operating expenses 2,349,000 Profit from operations 807,000 Interest expense 124,000 Profit before income tax 683,000 Income tax expense 203,000 Profit $480,000

ACCT 5211/Sept2022 Page 6 of 6 The following selected current asset and current liability balances are reported on Kosinskis comparative statement of financial position at December 31:

2020 2019 Increase (Decrease)

Cash $150,000 $ 30,000 $120,000 Accounts receivable 775,000 610,000 165,000 Merchandise inventory 834,000 867,000 (33,000) Accounts payable 521,000 501,000 20,000 Income tax payable 53,000 25,000 28,000

Additional information: The company uses a perpetual inventory system. Operating expenses include salaries expense of $1 million, depreciation expense of $300,000, amortization expense of $80,000, and a loss on the disposal of machinery of $24,000. Machinery was sold for $270,000, at a loss of $24,000. New machinery was purchased during the year for $1,250,000. It was partially financed by a bank loan payable issued for $400,000. Dividends paid in 2015 totaled $100,000.

a) Prepare the statement of cash flows using the indirect method. b) Prepare the statement of cash flows using the direct method.

c) Identify the similarities and differences between your answers in parts (a) and (b).