The Marketing Store was established as a sole trader business, specialising in providing marketing services, on 1 January 2019. The owner, Jenny Smart, contributed $100 000 in cash to the business and did not withdraw funds for the year.

For the year ended 31 December 2019, the following events occurred in the business.

1. Received $280 000 cash for marketing services provided.

2. Paid cash expenses of $200 000 for office supplies and labour.

3. At the end of the year, the business purchased a vehicle for $32 000 cash and a new computer design system for $50 000 cash.

4. The business leases premises as an office. Lease rental payments for the year amounted to $33 000.

5. The business purchased for $80 000 a block of land on which Jenny hopes to build an office in the new year. To help pay for the land, the business had to borrow $30 000 from a bank in cash.

Required

(a) Prepare an income statement for The Marketing Store for the year ended 31 December 2019.

(b) Prepare a statement of cash flows for The Marketing Store for the year ended 31 December 2019.

(c) Discuss if a business can operate profitably and still have a net cash outflow for the year.

(d) Provide a counter argument to the statement that ‘a better indicator of an entity’s performance is cash flow’.