The following accounts and corresponding balances were drawn from Crimson Sports, Inc.’s Year 2 and Year 1 year-end balance sheets:

The Year 2 income statement is shown next: Income Statement

Sales ............................................................................. $495,000
Cost of goods sold .........................................................(215,000)
Gross margin .................................................................280,000
Service revenue .............................................................20,000
Insurance expense ........................................................(42,000)
Salaries expense ...........................................................(122,000)
Depreciation expense ................................................... (12,000)
Operating income ..........................................................124,000
Gain on sale of equipment ............................................1,500
Net income ................................................................... $125,500

Required
a. Prepare the operating activities section of the statement of cash flows using the direct method.
b. Prepare the operating activities section of the statement of cash flows using the indirect method.

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Account Title Year 2 Year 1 Accounts receivable Merchandise inventory Prepaid insurance Accounts payable Salaries payable Unearned service revenue $31,000 70,000 $36,000 65,000 24,000 20,000 4,500 25,000 18,000 5,100 10,200 9,500