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:

Monetary Unit Assumption

Accounting information should be measured and reported in the national monetary unit without any adjustments for changes in purchasing power.

National Monetary Unit

The primary currency of a country, used as a medium of exchange and basis for trade.

Purchasing Power

The value of currency expressed in terms of the amount of goods or services that one unit of money can buy.

Transaction

An exchange between a business and one or more external parties to a business or a measurable internal event such as the use of assets in operations.