Maurice Tutor
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Case 15-50Â Â Â Â Â Â Direct and Indirect Methods
The comparative balance sheets and income statement of Piura Manufacturing  follow.
Piura Manufacturing Comparative Balance Sheets
For the Years Ended June 30, 2013 and 2014
2013Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 2014
Â
Â
|
Assets Cash |
 $  72,000 |
 |
 $146,400 |
 |
|
Accounts receivable |
44,000 |
 |
48,000 |
 |
|
Inventory |
64,000 |
 |
44,000 |
 |
|
Plant and equipment |
104,000 |
 |
112,000 |
 |
|
Accumulated depreciation |
(52,000) |
 |
(48,000) |
 |
|
Land |
20,000 |
 |
20,000 |
 |
|
Total assets |
$252,000 |
 |
$322,400 |
 |
|
Liabilities and equity Accounts payable |
 $  32,000 |
 |
 $  48,000 |
 |
|
Wages payable |
4,000 |
 |
2,400 |
 |
|
Bonds payable |
24,000 |
 |
16,000 |
 |
|
Preferred stock (no par) |
4,000 |
 |
12,000 |
 |
|
Common stock |
30,000 |
 |
36,000 |
 |
|
Paid-in capital in excess of par |
50,000 |
 |
76,000 |
 |
|
Retained earnings |
108,000 |
 |
132,000 |
 |
|
Total liabilities and equity |
$252,000 |
 |
$322,400 |
 |
Piura Manufacturing Income Statement
For the Year Ended June 30, 2014
Â
|
Sales |
$ 320,000 |
|
Less: Cost of goods sold |
(200,000) |
|
Gross margin |
$ 120,000 |
|
Less: Operating expenses |
(88,000) |
|
Net income |
$Â Â 32,000 |
Additional transactions for 2014 were as follows:
a.      Cash dividends of $8,000 were paid.
b.      Equipment was acquired by issuing common stock with a par value of $6,000. The fair mar- ket value of the equipment is $32,000.
c.       Equipment with a book value of $12,000 was sold for $6,000. The original cost of the equip- ment was $24,000. The loss is included in operating expenses.
d.      Two thousand shares of preferred stock were sold for $4 per share.
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Required:
1.      Prepare a schedule of operating cash flows using (a) the indirect method and (b) the direct method.
2.      Prepare a statement of cash flows using the indirect method.
3.      Prepare a statement of cash flows using a worksheet similar to the one shown in Corner- stone 15.8 (p. 688).
4.      Form a group with two to four other students, and discuss the merits of the direct and indi- rect methods. Which do you think investors might prefer? Should the FASB require all com- panies to use the direct method?