Suppose your company sells services of $150 in exchange for $100 cash and $50 on account. Depreciation of $40 also is recorded.

Required:

1. Show the journal entries to record these transactions.

2. Calculate the amount that should be reported as net cash flow from operating activities.

3. Calculate the amount that should be reported as net income.

4. Show how the indirect method would convert net income (requirement 3) to net cash flow from operating activities (requirement 2).

5. What general rule about converting net income to operating cash flows is revealed by your answer to requirement 4?