P23-6 (SCF—Indirect Method, and Net Cash Flow from Operating Activities, Direct Method) Comparative balance sheet accounts of Secada Inc. are presented below SECADA INC. COMPARATIVE BALANCE SHEET ACCOUNTS AS OF DECEMBER 31, 2008 AND 2007 December 31 Debit Accounts 2008 2007 Cash $ 45,000 $ 33,750 Accounts Receivable 67,500 60,000 Merchandise Inventory 30,000 24,000 Investments (available-for-sale) 22,250 38,500 Machinery 30,000 18,750 Buildings 67,500 56,250 Land 7,500 7,500 $269,750 $238,750 Credit Accounts Allowance for Doubtful Accounts $ 2,250 $ 1,500 Accumulated Depreciation—Machinery 5,625 2,250 Accumulated Depreciation—Buildings 13,500 9,000 Accounts Payable 30,000 24,750 Accrued Payables 3,375 2,625 Long-Term Note Payable 26,000 31,000 Common Stock, no par 1 50,000 125,000 Retained Earnings 39,000 42,625 $269,750 $238,750 Additional data (ignoring taxes): 1. Net income for the year was $42,500. 2. Cash dividends declared during the year were $21,125. 3. A 20% stock dividend was declared during the year. $25,000 of retained earnings was capitalized. 4. Investments that cost $20,000 were sold during the year for $23,750. 5. Machinery that cost $3,750, on which $750 of depreciation had accumulated, was sold for $2,200. Secada’s 2008 income statement follows (ignoring taxes). Sales $540,000 Less: Cost of goods sold 380,000 Gross margin 160,000 Less: Operating expenses (includes $8,625 depreciation and $5,400 bad debts) 120,450 Income from operations 39,550 Other: Gain on sale of investments $3,750 Loss on sale of machinery (800) 2,950 Net income $ 42,500 Instructions (a) Compute net cash flow from operating activities using the direct method. (b) Prepare a statement of cash flows using the indirect method.