Statement of Cash Flows - Direct Method
the Controller of Nebula

question 5

Essay

Statement of cash flows - direct method
The controller of Nebula Corporation has provided you with the following information:
$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ Nebula Corporation
$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ Income Statement
$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ For the Year Ended December 31, 2020


$\begin{array}{llcc} \text { Net sales..................................................... } &&\$620,000 \\ \text { Operating expenses.....................................} &&\underline{410,000}\\ \text {Income from operations................................ } &&210,000\\ \text { Other revenues and expenses } &\\ \text { Gain on sale of equipment........................... } &30,000\\ \text { Interest expense .........................................} &8,000&\underline{22,000}\\\text { Income before income taxes........................} &&232,000\\ \text { Income taxes..............................................} &&\underline{92,800}\\ \text {Net income.................................................. } &&\underline{\$139,200} \end{array}$

$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Nebula Corporation
$\quad$$\quad$$\quad$$\quad$$\quad$ Comparative Account Information
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Relating to Operations
$\quad$$\quad$$\quad$$\quad$ For the Year Ended December 31, 2020
$\begin{array}{lrr} & \underline{2020} & \underline{2019} \\\text { Accounts receivable } & 56,000 & 40,000 \\\text { Prepaid insurance } & 5,000 & 6,000 \\\text { Accounts payable } & 59,000 & 47,000 \\\text { Interest payable } & 600 & 1,500 \\\text { Income taxes payable } & 4,200 & 6,000 \\\text { Unearned revenue } & 20,000 & 14,000\end{array}$

Instructions
Prepare a statement of cash flows (for operating activities only) for the year ended December 31, 2020, using the direct method.

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Definitions:

Opportunity Cost

The financial consequence of skipping the immediate secondary choice while deciding.

Perpetuity

A financial instrument that pays a constant annual amount indefinitely, often used in valuing financial assets.

Annual Income

Annual income is the total amount of money earned over a year from employment, investments, or business operations.

Compounded Monthly

The process of calculating interest on both the initial principal and the accumulated interest from previous periods, with the compounding occurring on a monthly basis.