The statement of income of Kneale Transport Inc. for the year ended December 31, 2014, reported the
Question:
The statement of income of Kneale Transport Inc. for the year ended December 31, 2014, reported the following condensed information:
Kneale Transport Inc. Year Ended December 31, 2014 Statement of Income | ||
Service revenue | $605,000 | |
Operating expenses | 465,000 | |
Income from operations | 140,000 | |
Other revenues and expenses | ||
Gain on disposal of equipment | $45,000 | |
Interest expense | 18,000 | 27,000 |
Income before income tax | 167,000 | |
Income tax | 42,000 | |
Net income | $125,000 |
Kneale's statement of financial position included the following comparative data at December 31:
2020 | 2019 | |
Accounts receivable | $50,000 | $60,000 |
Prepaid insurance | 8,000 | 5,000 |
Accounts payable | 30,000 | 41,000 |
Interest payable | 2,000 | 750 |
Income tax payable | 8,000 | 4,500 |
Unearned revenue | 10,000 | 14,000 |
Additional information:
Operating expenses include $70,000 in depreciation expense. The company follows IFRS. Assume that interest is treated as an operating activity for purposes of the statement of cash flows.
Instructions
a. Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2020, using the
1.indirect method and
2.direct method.
b. From the perspective of an external user of Kneale Transport's financial statements, discuss the usefulness of the statement of cash flows prepared using either the indirect or the direct method.