Chapman Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company.

The comparative statement of financial position and income statement for Chapman as of May 31, 2015, are as follows. The company is preparing its statement of cash flows.

The following is additional information concerning Chapman’s transactions during the year ended May 31, 2015.
1. All sales during the year were made on account.
2. All merchandise was purchased on account, comprising the total accounts payable account.
3. Plant assets costing $98,000 were purchased by paying $28,000 in cash and issuing 7,000 ordinary shares.
4. The “other expenses” are related to prepaid items.
5. All income taxes incurred during the year were paid during the year.
6. In order to supplement its cash, Chapman issued 2,000 ordinary shares at par value.
7. There were no penalties assessed for the retirement of bonds.
8. Cash dividends of $105,000 were declared and paid at the end of the fiscal year.
Instructions

(a) Compare and contrast the direct method and the indirect method for reporting cash flows from operating activities.

(b) Prepare a statement of cash flows for Chapman Company for the year ended May 31, 2015, using the direct method. Be sure to support the statement with appropriate calculations.

(c) Using the indirect method, calculate only the net cash flow from operating activities for Chapman Company for the year ended May 31, 2015.

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CHAPMAN COMPANY COMPARATIVE STATEMENTS OF FINANCIAL POSITION AS OF MAY 31 2015 2014 Plant assets Plant assets $600,000 $502,000 Less: Accumulated depreciation-plant assets 150,000 125,000 450,000 377,000 Current assets Inventory Prepaid expenses Accounts receivable Cash Total current assets Total assets 220,000 250,000 9,000 7,000 75,000 58,000 28,250 20,000 332,250 335,000 $782,250 $712,000 Equity Share capital-ordinary, $10 par $370,000 $280,000 Retained earnings 145,000 120,000 515,000 400,000 Total equity Non-current liabilities Bonds payable 70,000 100,000 Current liabilities Accounts payable 123,000 115,000 Salaries and wages payable 47,250 72,000 Interest payable 27,000 25,000 Total current liabilities 197,250 212,000 Total liabilities 267,250 312,000 Total equity and liabilities $782,250 $712,000