[Reem2005]

Comparative balance sheet accounts of Luke Inc. are presented below.





Luke Inc.
COMPARATIVE BALANCE SHEET ACCOUNTS
AS OF DECEMBER 31, 2014 AND 2013


December 31

Debit Accounts
2014
2013

Cash
$ 42,000
$ 33,750

Accounts Receivable
70,500
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
35,000
24,750

Accrued Payables
3,375
2,625

Long-Term Note Payable
21,000
31,000

Common Stock, no par
150,000
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 and paid during the year were $21,125.


3.
A 20% stock dividend was declared during the year. $25,000 of retained earnings was capitalized (debited) and common stock was credited.


4.
Investments that cost $25,000 were sold during the year for $28,750.


5.
Machinery that cost $3,750, on which $750 of depreciation had accumulated, was sold for $2,200.



Luke's 2014 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





(a)
Compute net cash flow from operating activities using the direct method.

(b)
Prepare a statement of cash flows using the indirect method.