Bannack Corp. is in the process of preparing its statement of cash flows for the year ended June 30, 2010. An income statement for the year and comparative balance sheets are as follows:
Dividends of $5,000 were declared and paid during the year. New plant assets were purchased during the year for $125,000 in cash. Also, land was sold for cash at its book value. Plant assets were sold during the year for $20,000 in cash. The original cost of the assets sold was $50,000, and their book value was $30,000. A portion of the bank loan was repaid.
1. Prepare a statement of cash flows for 2010 using the direct method in the Operating Activities section.
2. Evaluate the following statement: Whether a company uses the direct or indirect method to report cash flows from operations is irrelevant because the amount of cash flow from operating activities is the same regardless of which method isused.