Refer to the information presented in PA-40 and the supplemental information below: Sales ...................................................................... $1,600,000Cost of goods

Question:

Refer to the information presented in PA-40 and the supplemental information below:

Sales ...................................................................... $1,600,000Cost of goods sold ............................................... ? ? 600,000Sales and administrative expenses ................... ? ?525,000

Data from PA-40

Preferred shares were converted to common shares during the year at their book value.
The face value of the bonds is $400,000; they pay a coupon rate of 5% per annum. The effective interest rate of interest is 6% per annum.
Net income was $80,000.
There was an ordinary stock dividend valued at $4,000 and cash dividends were also paid.
Interest expense for the year was $125,000. Income tax expense was $20,000.
Solnickova arranged for a $250,000 bank loan to finance the purchase of the held-to-maturity investments.
Solnickova has adopted a policy of reporting cash flows arising from the payment of interest and dividends as operating and financing activities, respectively.
The at fair value through profit or loss investments are not cash equivalents.

Required:a. Prepare the cash flows from operating activities section of the statement of cash flows using the direct method.b. Compare and contrast the cash flows from operating activities prepared in this question using the direct method with that prepared in PA-40 part (a) using the indirect method. Which statement do you feel provides investors and other users of the financial statements with more useful information? Why?

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