Refer to the information presented for Galenti, Inc. in P17-9B.

Additional information:
1. Accounts Payable is used for merchandise purchases.
2. Prepaid expenses and accrued expenses payable relate to operating expenses.
3. Accounts receivable relate to merchandise sales.
Instructions
Prepare a cash flow statement for the year using the direct method.
TAKING IT FURTHER
Inventory and accounts payable both increased during 2014. Explain how these changes are reported on the cash flow statement when using the direct method.

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GALENTI, INC. Balance Sheet December 31 2014 102,700 94,500 80,800 111,900 10,000 290,000 (49,500) $640,400 Assets Trading investments Accounts receivable Inventory Prepaid expenses Property, plant, and equipment Accumulated depreciation 2013 $47,250 107,000 37,000 102,650 16,000 205,000 (40,000) $474,900 Total assets Liabilities and Shareholders Accounts payable Accrued expenses payable Notes payable Common shares Retained earnings 62,700 12,100 140,000 250,000 175,600 $640,400 54,280 18,830 80,000 200,000 121,790 $474,900 Total liabilities and shareholders' equity GALENTI, INC Income Statement Year Ended December 31, 2014 Revenues Sales S307,500 8,750 316,250 Gain on sale of equipment Expenses Cost of goods sold Operating expenses Depreciation expense Interest expense Loss on sale of trading investments $99,460 24,670 58,700 2,940 7,500 193,270 122,980 32,670 $90,310 Profit before income tax Income tax expense Profit