Refer to the income statement and comparative balance sheets for Arctic Company presented in P4-48.

Data from P4-48:

REQUIRED:

a. Compute Arctic Company's cash flow from operating activities using the direct method. Use the format illustrated in Exhibit 4.5 in the chapter.

b. What can we learn from the direct method that may not be readily apparent when reviewing a cash flow statement prepared using the indirect method?

Exhibit 4.5:

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ARCTIC COMPANY Baliance Sheets Dec. 31, Dec. 31. 2018 2017 Assets $ 49,000 42,000 107,000 10,000 Cash.... $ 28.000 .... Accounts receivable 50,000 Inventory.... Prepaid advertising. Plant assets ..... Accumulated depreciation 113,000 13,000 360,000 222,000 (78,000) (56,000) Total assets S490,000 $370,000 Liabilities and Stockholders' Equity $ 17,000 $ 31,000 Accounts payable. Interest payable . 6,000 Bonds payable. Common stock Retained earnings 200,000 245,000 245,000 52,000 94.000 ..... Treasury stock .. (30,000) - Total liabilities and equity. $490,000 $370,000