The income statement for Hanalei International Inc. is presented here:

HANALEI INTERNATIONAL INC.

Income Statement

Year Ended December 31, 2015

Fee revenue .................................................. $565,000

Operating expenses ...........................................365,000

Profit from operations .........................................200,000

Interest expense .................................................10,000

Profit before income tax .....................................190,000

Income tax expense ...........................................47,500

Profit .........................................................$142,500

Hanalei's statement of financial position contained the following account balances:

Additional information:
1. Operating expenses include depreciation expense, $45,000; amortization expense, $5,000; administrative expenses,
$40,000; salaries expense, $300,000; and gain on disposal of equipment, $25,000.
2. Unearned revenue is received from customers.
3. Prepaid insurance and accounts payable relate to operating (administrative) expenses.
Instructions
(a) Prepare the operating activities section of the statement of cash flows, using either (1) the indirect method or (2) the direct method, as assigned by your instructor.
(b) Which method-indirect or direct-do you recommend that this company use to prepare its operating activities section? Explain your reasoning.

Transcribed Image Text:

Accounts receivable Prepaid insurance Accounts payable Unearned revenue Salaries payable Interest payable Income tax payable 2015 $50,000 5,000 40,000 10,000 10,000 1,000 4,000 2014 $60,000 8,000 31,000 14,000 7,000 1,000 3,000 1