The comparative balance sheets and income statement of Piura Manufacturing follow. Additional transactions for 2010 were as follows:

a. Cash dividends of $8,000 were paid.

b. Equipment was acquired by issuing common stock with a par value of $6,000.

The fair market value of the equipment is $32,000.

c. Equipment with a book value of $12,000 was sold for $6,000. The original cost of the equipment was $24,000. The loss is included in operating expenses.

d. Two thousand shares of preferred stock were sold for $4 per share.

Piura Manufacturing
Income Statement
For the Year Ended June 30, 2010
Sales ............$ 320,000
Less: Cost of goods sold ...(200,000)
Gross margin .......$ 120,000
Less: Operating expenses ...(88,000)
Net income .........$ 32,000

Required:
1. Prepare a schedule of operating cash flows by using:
a. The indirect method
b. The direct method
2. Prepare a statement of cash flows using the indirect method.
3. Prepare a statement of cash flows by using a worksheet similar to the one shown in Cornerstone 15-8.
4. Form a group with two to four other students, and discuss the merits of the direct and indirect methods. Which do you think investors might prefer? Should the FASB require all companies to use the directmethod?

Transcribed Image Text:

Piura Manufacturing Comparative Balance Sheets For the Years Ended June 30, 2009 and 2010 $72000 $14 Plant and equipment Accumulated depreciation Liabilities and equity able Preferred stock (no par) 5 Paid-in capital in excess of par Total liabilities and equity