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Statement of cash flows, direct and indirect method

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P23-8 Comparative balance sheet accounts of Jensen Company are presented below.

JENSEN COMPANY
COMPARATIVE BALANCE SHEET ACCOUNTS
DECEMBER 31,
Debit Balances 2007 2006
Cash $80,000 $51,000
Accounts receivable 145,000 130,000
Merchandise inventory 75,000 61,000
Investments
(Available-for-sale) 55,000 85,000
Equipment 70,000 48,000
Buildings 145,000 145,000
Land 40,000 25,000
Totals $610,000 $545,000
Credit Balances
Allowance for Doubtful Accounts $10,000 $8,000
Accumulated Depreciation - Equipment 21,000 14,000
Accumulated Depreciation - Building 37,000 28,000
Accounts payable 70,000 60,000
Income taxes payable 12,000 10,000
Long-term notes payable 62,000 70,000
Common stock 310,000 260,000
Retained earnings 88,000 95,000
Totals $610,000 $545,000

Additional data:

1. Equipment that cost $10,000 and was 40% depreciated was sold in 2007.
2. Cash dividends were declared and paid during the year.
3. Common stock was issued in exchange for land.
4. Investments that cost $35,000 were sold during the year.

Jensen's 2007 income statement is as follows.

Sales $950,000
Less: Cost of goods sold 600,000
Gross profit 350,000
Less: Operating expenses (includes deprecation and bad debt expense)
250,000
Income from operations 100,000
Other revenues and expenses
Gain on sale of investments $15,000
Loss on sale of equipment (3,000) 12,000
Income before taxes 112,000
Income taxes 45,000
Net income $67,000

Instructions

a. Compute net cash provided by operating activities under the direct method.
b. Prepare a statement of cash flows using the indirect method.

Compute net cash provided by operating activities under the direct method.

Next is cash paid for income taxes.

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The solution explains how to prepare a statement of cash flows using direct and indirect method

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