Refer to the following summarized statement of earnings and additional selected information for Huanca Inc.:

Required:
1. Based on this information, compute cash flow from operating activities using the direct method. Assume that prepayments and accrued liabilities relate to other expenses.
2. What were the major reasons that Huanca was able to report positive cash flow from operations despite a net loss? Why are the reasons for the difference between cash flows from operations and net earnings important to financial analysts?

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Statement of Earnings Revenues $146,500 Cost of sales Gross profit 91,000 56.835 33,305 7.781 S (6,921) Salary expense Depreciaton and amortization Other expenses Net loss Other information: Decrease in trade receivables Decrease in inventories Increase in prepayments Increase in trade payables Decrease in accrued liabilities $ 170 643 664 2.282 1,142