For this assignment, please answer the following questions:
1. What is the principal disadvantage of the direct method of reporting cash flows from operating activities?
2. What are the major advantages of the indirect method of reporting cash flows from operating activities?
3. A corporation issued $2,000,000 of common stock in exchange for $2,000,000 of fixed assets. Where would this transaction be reported on the statement of cash flows?
4. A retail business, using the accrual method of accounting, owed merchandise creditors (accounts payable) $320,000 at the beginning of the year and $350,000 at the end of the year. How would the $30,000 increase be used to adjust net income in determining the amount of cash flows from operating activities by the indirect method? Explain.