The financial statements of Milk River Ltd. follow: 

Additional information: 

1. Equipment costing $24,000 was purchased with an $8,000 down payment and the remainder was financed with a note payable. 

2. During the year, equipment was sold for $10,500 cash. This equipment had cost $12,000 originally and had a carrying amount of $8,500 at the time of sale. 

3. All depreciation expenses are included in the operating expenses category. 

4. Notes payable were also repaid during the year. 

Instructions 

a. Prepare a cash flow statement for the year using the indirect method. 

b. Prepare a cash flow statement for the year using the direct method. 

If equipment was both purchased and sold during the year, is it important to show both of these transactions? Or is it sufficient to show only the net increase or decrease in equipment, similar to how increases and decreases in inventory are shown? Explain.

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Assets Cash Accounts receivable Inventory Property, plant, and equipment Accumulated depreciation Goodwill MILK RIVER LTD. Balance Sheet December 31 Total assets Liabilities and Shareholders' Equity Accounts payable Income tax payable Notes payable Common shares Retained earnings Total liabilities and shareholders' equity 2024 $ 13,000 32,000 33,000 90,000 (30,000) 5,000 $143,000 $ 18,000 2,000 42,000 18,000 63,000 $143,000 2023 $ 5,000 24,000 20,000 78,000 (24,000) 16,000 $119,000 $ 15,000 4,000 52,750 14,000 33,250 $119,000