The comparative statement of financial position of Dropafix Inc. as at June 30, 2020, and a statement of comprehensive income for the 2020 fiscal year follow:

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?Dropafix Inc.? ? ? ? ? ? ? Statement of Comprehensive Income? ? ? ? ? ? ? ? ? ?For the Year Ended June 30, 2020Net sales ................................................................. $323,000Cost of goods sold ................................................... 175,000Gross profit ............................................................... 148,000Operating expenses ................................................. 120,000Income from operations ............................................ 28,000Interest expense ........................................................... 9,000Income before income tax ........................................ 19,000Income tax .................................................................... 6,000Net income ................................................................. 13,000Other comprehensive incomeUnrealized gain or loss?OCI ...................................... 2,000Comprehensive income .......................................... $ 15,000

Additional information:

1. Dropafix follows IFRS. Assume that interest is treated as an operating activity for purposes of the statement of cash flows.

2. Operating expenses include $10,000 in depreciation expense.

3. There were no disposals of equipment during the year.

4. Common shares were issued for cash.

5. During the year, Dropafix acquired $8,000 of equipment in exchange for long-term notes payable.

Instructions

a. Prepare the statement of cash flows for Dropafix for the year ended June 30, 2020, using the indirect method along with any necessary note disclosure.

b. Prepare the operating activities section of the statement of cash flows for Dropafix using the direct method.

c. Digging Deeper From the perspective of a creditor holding several of the long-term notes in substantial amounts owed by Dropafix, how do you view the cash management demonstrated by Dropafix?

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Dropafix Inc. Statement of Financial Position June 30, 2020 June 30 Assets 2020 2019 Cash Accounts receivable $ 20,000 $ 38,000 86,000 74,000 Inventory Prepaid expenses FV-OCI investments 103,000 102,000 6,000 2,000 47,000 45,000 Equipment Accumulated depreciation–equipment 173,000 159,000 (35,000) (25,000) Total $396,000 $399,000 Liabilities and Shareholders' Equity Accounts payable Income tax payable Dividends payable Long-term notes payable Common shares Retained earnings Accumulated other comprehensive income Total $115,000 2,000 5,000 84,000 31,000 148,000 11,000 $100,000 -0- 119,000 24,000 144,000 9,000 $396,000 $399,000