Presented below is the income statement of Cowan, Inc.: Sales revenue $380,000 Cost of goods sold 225,000 Gross profit $155,000 Operating expenses 95,000 Income before income taxes 60,000 Income taxes 24,000 Net income $36,000 In addition, the following information related to net changes in working capital is presented: Debit Credit Cash $12,000 Accounts receivable 25,000 Inventories $19,400 Salaries payable (operating expenses) 8,000 Accounts payable 14,000 Income taxes payable 3,000 The company also indicates that depreciation expense for the year was $16,700 and that the deferred tax liability account increased $2,600. Instructions Prepare a schedule computing the net cash flow from operating activities that would be shown on a statement of cash flows: (a) using the indirect method. (b) using the direct method.

NET CASH FLOW FROM OPERATING ACTIVITY INDIRECT METHOD

                              Cowan Inc.  

              Statement of cash flow (partial)

                            Indirect Method

Cash Flows from Operating Activities:

NET INCOME                                                                 $36,000

Adjustment of non cash expenditure:

Depreciation                                                                  $16,700

Operating profit before working capital changes$52,0700

ADJUSTMENTS FOR WORKING CAPITAL CHANGES:

INCREASE IN ACCOUNT RECEIVABLE                       ($25,000)

DECREASE IN INVENTORY                                           $19,400

INCREASE IN ACCOUNT PAYABLE                              $14,000

DECREASE IN SALARY PAYABLE                                ($8,000)

DECREASE IN INCOME TAX PAYABLE                        ($3,000)

INCREASE IN DEFERRED TAX LIABILITY                     $2,600

NET CASH FROM OPERATING ACTIVITY                  $52,700