Financial information for Fesone Inc.'s balance sheet for fiscal 2013 and 2014 follows:

\begin{array}{lll} & \textbf { 2014} & \textbf { 2013} \\\\\text { Cash } & 32,300 & 350,000 \\\\\text { Accounts receivable } & 1,670,000 & 1,800,000 \\\\\text { Inventory } & 710,000 & 450,000 \\\\\text { Investments - held for trading } & 350,000 & 0 \\\\\text { Investments - held to maturity } & 150,000 & 0 \\\\\text { Property plant and equipment } & 4,000,000 & 4,000,000 \\\\\text { Accumulated depreciation } & (1,935,000) & (1,660,000) \\\\\text { Total } & \mathbf{4 , 9 7 7 3 0 0} & \mathbf{4 , 9 4 0 , 0 0 0}\end{array}

\begin{array}{lll}\text { Accounts payable } & 220,000 & 40,000 \\\\\text { Bank loan } & 2,601,000 & 3,000,000 \\\\\text { Bonds payable } & 595,300 & 590,000 \\\\\text { Preferred shares } & 0 & 20,000 \\\\\text { Common shares } & 473,000 & 350,000 \\\\\text { Retained earnings } & 1,088,000 & 940,000 \\\\\text { Total } & \mathbf{4 , 9 7 7, 3 0 0} & \mathbf{4 , 9 4 0 , 0 0 0}\end{array}

Additional information:
1.Preferred shares were converted to common shares during the year at their book value.
2.The face value of the bonds is $600,000; they pay a coupon rate of 6% per annum.The effective interest rate of interest is 7% per annum.
3.Net income was $205,000.
4.There was an ordinary stock dividend valued at $13,000 and cash dividends were also paid.
5.Interest expense for the year was $115,000.Income tax expense was $61,500.
6.Fesone arranged for a $425,000 bank loan to finance the purchase of the held-to-maturity investments.
7.Fesone has adopted a policy of reporting cash flows arising from the payment of interest and dividends as operating and financing activities,respectively.
8.The held-for-trading investments are not cash equivalents.
9.Sales = 2,000,000; cost of goods sold = 300,000; and,sales and administration expenses = 1,043,500
Requirement:
Prepare the cash flows from operating activities section of the statement of cash flows using the direct method.

Which Statement Is Correct

Multiple Choice

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