P23-7 (SCFDirect and Indirect Methods from Comparative Financial Statements) Chapman Company, a major retailer of bicycles and accessories, operates...

P23-7 (SCF—Direct and Indirect Methods from Comparative Financial Statements) ChapmanCompany, a major retailer of bicycles and accessories, operates several stores and is a publicly tradedcompany. The comparative statement of financial position and income statement for Chapman as ofMay 31, 2010, are shown on the next page. The company is preparing its statement of cash flows.CHAPMAN COMPANYCOMPARATIVE STATEMENT OF FINANCIAL POSITIONAS OF MAY 312010 2009Current assetsCash $ 28,250 $ 20,000Accounts receivable 75,000 58,000Merchandise inventory 220,000 250,000Prepaid expenses 9,000 7,000Total current assets 332,250 335,000Plant assetsPlant assets 600,000 502,000Less: Accumulated depreciation 150,000 125,000Net plant assets 450,000 377,000Total assets $782,250 $712,000Current liabilitiesAccounts payable $123,000 $115,000Salaries payable 47,250 72,000Interest payable 27,000 25,000Total current liabilities 197,250 212,000Long-term debtBonds payable 70,000 100,000Total liabilities 267,250 312,000Shareholders’ equityCommon stock, $10 par 370,000 280,000Retained earnings 145,000 120,000Total shareholders’ equity 515,000 400,000Total liabilities and shareholders’ equity $782,250 $712,000CHAPMAN COMPANYINCOME STATEMENTFOR THE YEAR ENDED MAY 31, 2010Sales $1,255,250Cost of merchandise sold 722,000Gross profit 533,250ExpensesSalary expense 252,100Interest expense 75,000Other expenses 8,150Depreciation expense 25,000Total expenses 360,250Operating income 173,000Income tax expense 43,000Net income $ 130,000The following is additional information concerning Chapman’s transactions during the year endedMay 31, 2010.1. All sales during the year were made on account.2. All merchandise was purchased on account, comprising the total accounts payable account.3. Plant assets costing $98,000 were purchased by paying $28,000 in cash and issuing 7,000 shares ofstock.4. The “other expenses” are related to prepaid items.5. All income taxes incurred during the year were paid during the year.6. In order to supplement its cash, Chapman issued 2,000 shares of common stock at par value.7. There were no penalties assessed for the retirement of bonds.8. Cash dividends of $105,000 were declared and paid at the end of the fiscal year.(c) Using the indirect method, calculate only the net cash flow from operating activities for ChapmanCompany for the year ended May 31, 2010.

Cash flow statementDetails ParticularsRetained earningsAdd Non cash itemsDepreciationDividendNet profit before working capital changesAdd inventoryAccounts payableInterest payableLess...