- 24 - Perception of Images in Advertising and Impact on  Consumers’ Lives    KATHERINE SULLIVAN  (1)  Exhibit 1: Nikolai Yezhov was photographed walking with Stalin, but after he was shot in 1940, he was  entirely edited out of the photograph  - 25 - Introduction    In  educated  societies,  the  human  brain  has  been  trained  to  analyze text in a way that a reader is able to interpret writing as whatever  he or she sees  in the meaning of the words by analyzing the context  in  which the text was written. Through teaching people to read and analyze  literature, the educated society has become more accustomed to picking  apart the words they are reading.  That same process, however, does not  hold true for the human perception of images.  Through societal norms,  we have grown accustomed to accept images as truth without using the  same analytical process to pick apart images in the way we do text.  The  human perception of “truth in images” plays a major role in the modern  day trend of manipulating photographs.    In this  increasingly digital age,  photographs can be manipulated to portray an  illusion of whatever the  manipulator wants the picture to be.  This can be especially prevalent in  print advertising, where the main goal is to influence the needs or desires  of a consumer with persuasive images.     Given  the  premise  that  the  humans  process  images  as  truth  without taking the time to be critical, advertisers have a duty to present  images in a genuine form in order to avoid falsely misleading a consumer.   However, the basic foundation of advertising  is  its creatively persuasive  nature.    Consequentially,  the  end  result  of  stimulating  a  desire  in  the  consumer  for  a  certain  product  justifies  the  means  of  advertisers  using  creativity  to  essentially  “sell”  their  idea  to  the  consumer.  Hence,  the  consumer  has  an  equally  important  duty  to  be  more  critical  of  advertisements  as  well  as  a  responsibility  for  his/her  own  actions  in  response.    - 26 -   The dilemma is that modern day consumers are not engaging in  being a critical audience of advertisements the way they should be. This  uneducated  consumer  population  creates  the  dilemma  that  consumers  are being misguided by images and believe that the images are truthful, at  a  possible  harm  to  themselves.    The  manipulation  of  images  by  advertisers not only mis‐represents the truth, but also guides these un‐ trained consumers to believe an un‐true statement about a product. This  can lead to potential harm if consumers don’t take a more active duty in  evaluating  images  in  advertisements  more  carefully  and  realize  that  advertisements are manipulative and persuasive by nature.    Therefore, the deontological standard  of ethics  lays somewhere  between the duty of the advertiser to be aware of the human perception  of  “truth  ...

1. - 24 -
Perception of Images in Advertising and Impact on
Consumers’ Lives
KATHERINE SULLIVAN
(1)
Exhibit 1: Nikolai Yezhov was photographed walking with Stali
n, but after he was shot in 1940, he was
entirely edited out of the photograph
- 25 -
Introduction
In educated societies, the human brain has been trained

2. to
analyze text in a way that a reader is able to interpret writing as
whatever
he or she sees
in the meaning of the words by analyzing the context in
which the text was written. Through teaching people to read and
analyze
literature, the educated society has become more accustomed to
picking
apart the words they are reading. That same process, however,
does not
hold true for the human perception of images. Through societal
norms,
we have grown accustomed to accept images as truth without usi
ng the
same analytical process to pick apart images in the way we do t
ext. The
human perception of “truth in images” plays a major role in the
modern
day trend of manipulating photographs. In this
increasingly digital age,
photographs can be manipulated to portray an
illusion of whatever the
manipulator wants the picture to be. This can be especially pre

3. valent in
print advertising, where the main goal is to influence the needs
or desires
of a consumer with persuasive images.
Given the premise that the humans process images as
truth
without taking the time to be critical, advertisers have a duty to
present
images in a genuine form in order to avoid falsely misleading a
consumer.
However, the basic foundation of advertising is
its creatively persuasive
nature. Consequentially, the end result of stimulating a
desire in the
consumer for a certain product justifies the means of
advertisers using
creativity to essentially “sell” their idea to the consumer.
Hence, the
consumer has an equally important duty to be more
critical of
advertisements as well as a responsibility for his/her own
actions in
response.

4. - 26 -
The dilemma is that modern day consumers are not engaging in
being a critical audience of advertisements the way they should
be. This
uneducated consumer population creates the dilemma that
consumers
are being misguided by images and believe that the images are t
ruthful, at
a possible harm to themselves. The manipulation of
images by
advertisers not only mis‐represents the truth, but also guides the
se un‐
trained consumers to believe an un‐true statement about a produ
ct. This
can lead to potential harm if consumers don’t take a more active
duty in
evaluating images in advertisements more carefully and
realize that
advertisements are manipulative and persuasive by nature.
Therefore, the deontological standard of ethics
lays somewhere

5. between the duty of the advertiser to be aware of the human per
ception
of “truth in images” as well as the duty of the
consumers to be more
educated and critical of how they analyze the advertisements pr
esented
to them in everyday life.
Psychological Perception of Images as Reality
“Visually the majority of us are still ‘object‐minded’ and not ‘re
lation‐minded’
… the language of vision determines, perhaps even more subtly
and thoroughly
than verbal language, the structure of our consciousness.” 2
Education in
literature has created a more critical audience that
interprets writing in a multitude of different ways.
Imagine reading an
article relating to modern day politics. Automatically, as a reade
r, we are
taught to analyze the words for context and different implicatio
ns of what

6. the author is really trying to say. One might ask: “Who
is writing it?”,
“What is their political stance and party affiliation?”, “What do
they want
- 27 -
me to learn?” and finally, “What am I going to take
away from this?”
After reading an article and analyzing the different ways
it can be
interpreted based on context, one can decide whether or
not to agree
with the author’s statements as they are going through this proc
ess and
walk away with an educated decision to create his/her
own viewpoint.
However, humans have not been trained to evaluate images in th
e same
analytical process. We have learned to accept a picture or phot
ograph for
what it is. We don’t take the time to step back and analyze the c
ontext of

7. the picture, its ability to be manipulated, or the point of
view the
photographer is trying to portray. Society as a whole
processes
photographic images as truth and does not promote a
skeptical and
analytical viewing audience.
Recent evidence in perception and cognition demonstrates
the
importance of visual perception and that, “Our eyes are
wondrous
windows to the world. The last of our senses to evolve
and the most
sophisticated, they are our main source of information about the
world,
sending more data to the nervous system than any other sense.”
3 In fact,
the human brain processes images in a way that triggers
emotion and
instinctive interpretation of reality. Instantaneously, when prese
nted with
an image, the human brain has been taught to interpret
the image as
reality and react immediately with instinctive emotions.

8. The way we
interpret images as reality is explained in J. J. Gibson’s theory.
He explains
the concept of the “visual field” which is the process of light ref
lections
coming into our eyes and the “visual world” which
interprets these
patterns of light as reality. 4 In the “visual world” we interpret i
mages as
our own perception of reality without further analyzing the cont
ext. These
images move freely from the visual field to the visual
world without
entering a stage of analytical processing. 5
- 28 -
Furthermore, Neuroscientist Joseph LeDoux’s study suggests th
at
we respond emotionally to viewing something before we can thi
nk them
through.6 This study shows that the process of the brain works i
n such a

9. way that signals coming into the eye travel to the thalamus and t
hen to
the amygdala (a part of the brain that plays a vital role
in emotional
responses) before a second signal is even sent to the neocortex.7
In more
common terms, this simply means our brain works in a way in w
hich we
react emotionally to things we see before we are even able to thi
nk about
them. Therefore, according to Gibson, images are presented to t
he brain
and interpreted as reality, and as LeDoux suggests, humans auto
matically
react with emotions. Summed up, the human brain has been trai
ned to
interpret images as reality while simultaneously reacting in an e
motional
sense. This triggers a problem when consumers stick to
these initial
instinctive emotional responses. What consumers should be
doing is
taking a step back and re‐evaluating the situation more critically
after the

10. initial emotional reaction to give themselves time to
process their
thoughts more clearly.
Image Manipulation
In consideration of the human brain processing images
as an
interpretation of reality, the accurate depiction of images is imp
ortant to
maintaining an honest representation. In the increasing digital a
ge, photo
manipulation has become an increasingly popular way of
re‐formatting
images to create a desired effect.8 Photoshop and other photo en
hancing
and editing programs have allowed people to take a photographi
c image
and edit it in any way the creator desires. Layers can be manipu
lated to
multiply numbers of people in the photograph just as easily as a
human’s

11. - 29 -
body can be airbrushed to display “perfection” or
“beauty”.9 Also,
selective cropping of photos can focus the image solely
on what the
creator of the photograph want the viewer to see. A
picture of a nice
quiet meadow can easily hide the toxic waste dump site that sits
only a
matter of feet away, creating a misleading illusion that the mead
ow is a
clean and pure area. Furthermore, specific objects now can be s
elected
and removed from a picture altogether. This type of editing is s
een quite
frequently in political propaganda. Nikolai Yezhov was
photographed
walking with Stalin, but after he was shot in 1940, he was entire
ly edited
out of the photograph (see figure 1).10 This shows the
ability to alter
photographs of historic events simply because of political
reasons.

12. However, this type of alteration to photographs is looked down
upon in
the journalism realm. Los Angeles Times Photojournalist,
Brian Walski,
was fired after he combined two images into one single image w
hich was
posted on the front page of the newspaper.11 This was a pressin
g issue
because the readers of the newspaper interpreted this
image as reality,
when in fact
it was manipulated and did not accurately portray the real
image.
In the press, standards have been set on images to ensure their
accuracy, because of the viewer’s reliance on the truth of
the
photographs. However, this controversy has also come up in adv
ertising,
especially real estate. Certain aspects of a home or its surround
ing areas
can be edited to make the property look more desirable and ther
efore sell
better.12 Power lines can be removed, colors can be made more
vivid and

13. dull parts of the house can be digitally touched up. Again, this
idea of
image manipulation would not be such an immense issue
if the images
were not interpreted as reality. However, since
images are perceived to
- 30 -
be a reality, manipulation of the genuine content of those image
s creates
dishonest and deceiving information to a non‐analytical consum
er.
The Powerful Impact of Images in Advertising
The fact that the brain processes images in a way that we react
quickly with emotional responses13 means that the powerful eff
ect public
images can have on society and the individual need to be consid
ered. Dr.
Julianne Newton, a visual journalism professor at the
University of

14. Oregon, said, "Images affect memory, and behavior, and values.
Images
affect what you believe about yourself, about others, and about t
he world
out there. Images are powerful, and visual ethics is about the ap
propriate
use of powerful images." 14 Consumers are exposed to
images used in
advertisements every day. Often times, these advertisements can
create
false beliefs about what society considers beautiful, “cool”
or what
“everyone else is doing”. The concept of “self –
identity image” ads
explores the idea of the powerful impact advertisements
have on an
individual. These types of ads portray an image that the individ
ual relates
to or compares themselves with. They create an idealized
image of a
person who typically represents a user of the product.15
An example
might be a “sex appeal” advertisement in which a thin,
flawless,

15. “beautiful” woman is portrayed in the picture, attempting
to sell a
product based on the association with the beautiful
individual. Many
women will relate to that image and see themselves as
imperfect or
needing to be more like the woman in the ad. This can
produce
potentially harmful psychological effects on the woman viewing
the ad.
This also creates a moral dilemma about the creation of the man
ipulated
image, because the woman now will compare herself to a false i
mage.16
- 31 -
The moral questions to ask when creating such an advertisement
should
be: whether or not the ad makes misleading promises, if it prom
otes false
values, if it causes harm, and if it threatens the
autonomy of the

16. individual.17
The basic idea behind “self‐identity image” advertising is that it
is
meant to create a feeling of association with the ad, and
its powerful
implications can cause a consumer to believe what is being pres
ented to
them. A woman might believe that if she uses the product, she t
oo will fit
this societal perception of “beauty”. These types of
images can have a
negative effect on an individual’s self esteem or create a mental
illusion
that he/she must conform to the pressures implied in the adverti
sement.
Ann Marie Barry said:
“As unhealthy and unrealistic advertising images become
more
and more implicated in social ills, such as psychologically
based but
mentally manifested afflictions of anorexia and bulimia; as
tobacco

17. addiction increases among young adolescents, and well over 100
0 people
die every day of tobacco related causes, we still have only begu
n to realize
how patterns in mass media first legitimize and then
normalize socially
destructive behavior.” 18
A historical example of advertisements that negatively
affected
women was in cigarette ads. Gloria Steinem of the National Org
anization
for Women Foundation stated, “Creating the idea that independe
nce was
attached somehow to smoking, or that it was a sign of
rebellion to
endanger your health, has been the main purpose of
cigarette
advertising.”19
- 32 -
In modern day, advertisements do have an increasingly powerful

18. impact on individual consumers and the way they think.
However,
consumers are constantly allowing advertisements to affect
their
decisions and thought processes. This brings up the idea that it
is both
the responsibility of marketers and consumers to understand the
amount
of power that consumers are giving images. After their initial re
action to
an ad, the consumer must realize what they are doing and step b
ack from
allowing themselves to be vulnerable. Also, advertisers
need to be
conscious of the possibility that images could have a
large effect they
have on a consumer’s viewpoint.
Responsibility of the Advertiser
As a result of consumers identifying with
images and perceiving
them as reality, marketers have an ethical responsibility
to present the

19. images in a way that avoids falsely misleading a
consumer to believe
something that is not true. This type of ethical behavior
is based on
deontological ethics or the marketer’s “duty” to have
good intentions
behind the creation of their advertisements as well as a “duty to
society”
to present images as facts. Deontological moral systems
are
characterized by the idea that in order to make the correct moral
choices,
we have to understand what our moral duties are. Furthermore,
there is
a need to evaluate what motivations are pushing actions
and if these
motivations have good intention.20 “Marketing textbooks
state that
consumers buy a product in the hopes that it will move them so
me way
from their "real self” to their "ideal self” (Beckman
1992).” 21 Once
marketers realize this power to affect consumer’s perceptions, t
hey have

20. a responsibility to present their advertising images in an honest
way.
- 33 -
However, the basic foundation of advertising and marketing is t
o
utilize creativity and innovation to stimulate a need in
the consumer.
Therefore, persuasive imaging and inventive messaging
must be a
contributing part to a marketer’s efforts. Given this
standard
establishment of what
it means to be a creative marketer, their artistic
and influential nature must be present, but it must also
be seeded in
honesty and good moral intentions.
Consequentialist ethical theories base the morality of an action t
o
be based on the consequences that result.22 In advertising, depi
cting an

21. image in a manipulative way may result in consequences of a co
nsumer
identifying with false beliefs. For example, an image of a woma
n put into
Photoshop and airbrushed to become flawless, may consequentia
lly lead
a woman consumer to believe that the product in the ad
will help her
become more like the woman in the image. However, in
the creative
realm of marketing, the end goal is to sell a product. Therefore,
the end
result justifies the means of stimulating these types of
beliefs in a
consumer. At this point, the duty switches over to the consumer
to realize
that in order to not subject oneself be a “mean to the
marketers end”
consumers must learn to be more critical of what is actually bei
ng sold in
the advertisement and what the actual context is of the image pr
esented.
Duty of the Consumer

22. Beyond the duty of the marketer to depict an accurate portrayal
of images presented to the public, the consumer has a
much greater
responsibility to become a more critical and analytical
audience of
advertisements. Like our earlier discussion on the extent to whi
ch readers
analyze the context and meaning of written word,
consumers need to
- 34 -
start to use the same type of analytical tools to view and process
images.
Although the brain reacts instinctively with emotions
before we even
have time to think about it, consumers need to take a step back
and think
through the situation after the first emotional response.
You cannot
control first instinct emotional responses. Our brain has been e
ngineered

23. in a way to react emotionally before we think to enable humans
to survive
in intense situations. However, after that initial
emotional reaction,
consumers can take a step back and actually think
through what was
presented to them and decide how they are going to ultimately r
eact to
the situation. Hence, consumers now have a certain duty to beco
me more
involved in dissecting advertisements after their first
reaction. John
Douglas Bishop23 suggests that in “self‐identity” image ads, the
goal of the
marketing strategy
is for the product to become a “symbol” of an ideal
person or ideal situation. If consumers are trained to be
a critical
audience, they can choose to accept or reject the symbolism. Th
is is also
largely due to the fact that the wide array of
image ads available. This
variety of advertisements allows the consumer to have the auton
omy to

24. choose which value to identify with. A consumer’s own self‐wil
l can direct
the outcome of those types of decisions.24 Furthermore, althoug
h people
are exposed to advertisements on a consistent basis, ads do not
have any
authoritative power and therefore cannot restrict human
free will to
decide our own behaviors.25 Humans still have the innate will t
o make our
own decisions and interpretations. Therefore, a human has the a
bility to
look at an ad and decide how to accept and interpret the image.
Lastly,
if consumers are concerned with the way they are being
affected by the images in advertisements, they have a
responsibility to
educate themselves on how to be more critical. Although it is d
ifficult to
decipher if the image was digitally manipulated, a consumer can
still ask
- 35 -

25. themselves, “What is the message the marketers are trying to ge
t me to
believe?” “What are they actually selling?” or “Does this image
accurately
portray a realistic view of what the product can do or is it exagg
erated for
persuasive purposes?” Once a consumer is more
conscious of the
implications behind the advertisement, they can understand the
context
of the images in the same way readers understand the
context of an
article. It is therefore the responsibility of the consumer
not to view
themselves as “victims of the system” but to take proactive step
s to learn
more about the background of the message that an advertising st
rategy is
trying to portray.
Recommended Actions
In a society where public service announcements are

26. becoming
more and more frequent, communities are becoming
involved with
educating people about important, widespread topics. Organizati
ons and
activist groups who aim to educate consumers need to step in an
d create
ads that will stimulate awareness in the consumer. Much
like how
“Partnership for a drug‐free America”
(http://www.drugfree.org/)
produces ads showing the negative effects of drugs, these types
of public
service ads can help educate consumers on how to be a
more critical
audience of advertisements. Once consumers are more aware of
how to
be a “smart audience”, they will be less susceptible to be
easily
manipulated by misleading ads. This will in turn help the adver
tisers learn
to be more honest in the way they present images. If
consumers are
learning to be more critical, the advertiser will inevitably

27. react and
become more aware of being honest in the images they create.
- 36 -
Conclusion
Advertising has long been a creative way to influence
consumers into
thinking they want or need a certain product. This is done throu
gh images
that a consumer processes as reality and emotionally connects w
ith. This
type of persuasive control in the hands of an advertiser
should be
grounded in moral and ethical responsibilities to portray their i
mages with
a certain amount of accuracy. This issue is prevalent in not only
the realm
of advertisements reaching consumers but also to images reachi
ng people
as citizens of a democratic society. Images are manipulated to s

28. timulate a
certain way of thinking in much of the political world as
well. Political
propaganda has the same goal as advertising: persuasive contro
l. Images
can be altered to promote a certain viewpoint or to gain support
for a
certain cause. However, a consumer and/or citizen ultimately n
eed to be
the decision makers on how they react to advertisements
or political
propaganda and the actions they take in response. When an ima
ge is put
in front of a person,
it does not take away from the natural autonomy
humans have in decision making. If an individual is
educated through
public service announcements regarding the analyzing of adverti
sements
or images, they can consciously choose not to accept an
image as the
ultimate truth and societal norm. The decision to be more critica
l and the
responsibility to stop the amount of control images have on the

29. society’s
values lay in the hands of the consumer or citizen themselves.
Therefore,
the strong power that images have had on an individual
is a shared
responsibility between the moral decisions of the advertiser or c
reator of
the image as well as the necessary critical thought
process of the
individual.
- 37 -
Works Cited
1. King, D. (1997). The Commissar Vanishes: the falsification o
f
photographs and art in Stalin's Russia. Metropolitan Books, Ne
w York
2. Barry, Ann Marie Seward. (1997). Visual Intelligence: Percep
tion, Image
and Manipulation in Visual Communication. New York: State U
niversity

30. of New York Press.
3. Ibid 2
4. Ibid 2
5. Ibid 2
6. LeDoux, Joseph. (1996). The Emotional Brain: The Mysterio
us
Underpinnings of Emotional Life. New York, NY: Touchstone,
Rockefeller
Center
7. Ibid 2
8. Gross, Larry P. and Katz, John Stewart. (2003). Image Ethics
in the
digital age. University of Minnesota Press
9. Ibid 8
10. Ibid 1
11. Walden, Scott. (2006). Truth in Photography. Blackwell Pub
lishing
12. Richardson, Vanessa. (2007). Not‐so‐real estate: Is it ethica
l to alter
photos? Bankrate.com Microsoft, MSN. Retreived from

31. http://realestate.msn.com/selling/Article_bankrate.aspx?cpdocu
mentid
=4697254
13. Ibid 2
14. Winslow, Donald R. (2007).
The Problem Seems To Be A Lot Deeper
National Press Photographers Association: Photojournalism Ethi
cs. News
Photographer Magazine.
15. Bishop, John Douglas. (2000). Is self identity image adverti
sing ethical?
Business Ethics Quarterly, Volume 10, Issue 2. pg 371‐392.
16. Ibid 15
17. Ibid 15
- 38 -
18. Ibid 2
19. Gloria Steinem. (1995). Warning! Advertising can be Hazar
dous to
your Health. [Motion picture]. United States: National Organiza
tion for

32. Women Foundation.
20. Cline, Austin. (2007). Deontology and Ethics: What is Deon
tology,
Deontological Ethics? About.com. Retrieved from
http://atheism.about.com/od/ethicalsystems/a/Deontological.htm
21. Ibid 15
22. Cline, Austin. (2007). Another view of consequentialist ethi
cs.
About.com. Retrieved from
http://atheism.about.com/b/2003/12/31/another‐view‐of‐
consequentialist‐ethics.htm
23. Ibid 15
24. Ibid 15
25. Ibid 15
A

33. A+ Grade
Solution
s
ACC 206 Week 1 Assignment
Please complete the following 5 exercises below in either Excel
or a word document (but must be single document). You must
show your work where appropriate (leaving the calculations
within Excel cells is acceptable). Save the document, and
submit it in the appropriate week using the Assignment
Submission button.
1. Critical Thinking Question:
Answer the following questions:
Why are noncash transactions, such as the exchange of common
stock for a building for example, included on a statement of
cash flows? How are these noncash transactions disclosed?
2. Classification of activitiesClassify each of the following
transactions as arising from an operating (O), investing (I),
financing (F), or noncash investing/financing (N) activity.
a. ________ Received $80,000 from the sale of land.

34. b. ________ Received $3,200 from cash sales.
c. ________ Paid a $5,000 dividend.
d. ________ Purchased $8,800 of merchandise for cash.
e. ________ Received $100,000 from the issuance of common
stock.
f. ________ Paid $1,200 of interest on a note payable.
g. ________ Acquired a new laser printer by paying $650.
h. ________ Acquired a $400,000 building by signing a
$400,000 mortgage note.
3. Overview of direct and indirect methods
Evaluate the comments that follow as being True or False. If the
comment is false, briefly explain why.
a. Both the direct and indirect methods will produce the same
cash flow from operating activities.
b. Depreciation expense is added back to net income when the
indirect method is used.
c. One of the advantages of using the direct method rather than
the indirect method is that larger cash flows from financing
activities will be reported.
d. The cash paid to suppliers is normally disclosed on the
statement of cash flows when the indirect method of statement

35. preparation is employed.
e. The dollar change in the Merchandise Inventory account
appears on the statement of cash flows only when the direct
method of statement preparation is used.
4. Equipment transaction and cash flow reporting
Dec. 31, 20X4
Dec. 31, 20X3
Property, Plant & Equipment:
Land
$94,000
$94,000
Equipment
652,000
527,000
Less: Accumulated depreciation
-316,000
-341,000
New equipment purchased during 20x4 totaled $280,000. The
20x4 income statement disclosed equipment depreciation

36. expense of $41,000 and a $9,000 loss on the sale of equipment.
a. Determine the cost and accumulated depreciation of the
equipment sold during 20X4.
b. Determine the selling price of the equipment sold.
c. Show how the sale of equipment would appear on a statement
of cash flows prepared by using the indirect method.
5. Cash flow information: Direct and indirect methodsThe
comparative year-end balance sheets of Sign Graphics, Inc.,
revealed the following activity in the company's current
accounts:
20X5
20X4
Increase / Decrease)
Current assets
Cash
$55,400
$35,200
$20,200

37. Accounts receivable (net)
83,800
88,000
-4,200
Inventory
243,400
233,800
9,600
Prepaid expenses
25,400
24,200
1,200
Current liabilities
Accounts payable
$123,600
$140,600
($17,000)
Taxes payable

38. 43,600
49,200
-5,600
Interest payable
9,000
6,400
2,600
Accrued liabilities
38,800
60,400
-21,600
Note payable
44,000
—
44,000
The accounts payable were for the purchase of merchandise.
Prepaid expenses and accrued liabilities relate to the firm's
selling and administrative expenses. The company's condensed
income statement follows.
SIGN GRAPHICS INC.
Income Statement

39. for the Year Ended December 31, 20x5
Sales
$713,800
Less: Cost of goods sold

40. 323,000
Gross profit
$390,800
Less: Selling & administrative expenses
$186,000

41. Depreciation expense
17,000
Interest expense
27,000
230,000

42. Add: gain on sale of land
$160,800
21,800
Income before taxes

43. $182,600
Income taxes
36,800
Net income
$145,800

44. Other data:
1. Long-term investments were purchased for cash at a cost of
$74,600.
2. Cash proceeds from the sale of land totaled $76,200.
3. Store equipment of $44,000 was purchased by signing a
short-term note payable. Also, a $150,000 telecommunications
system was acquired by issuing 3,000 shares of preferred stock.
4. A long-term note of $49,400 was repaid.
5. Twenty thousand shares of common stock were issued at
$5.19 per share.
6. The company paid cash dividends amounting to $128,600.
Instructions:
a. Prepare the operating activities section of the company's
statement of cash flows, assuming use of:
1. The direct method.
2. The indirect method.

45. b. Prepare the investing and financing activities sections of the
statement of cash flows.