McGregor Corp.'s accountants prepared the statements of financial position and income statement to be reported in the company's aninual report for 2012, and you have been asked to prepare the company's statement of cash flows for 2012 based on the following financial information.

Required:
1. Prepare a statement of cash flows for McGregor Corp. for the year ended December 31, 2012. Use the indirect method to report cash flows from operating activities.
2. Using the statement of cash flows you prepared in (1), compute and explain each of the following:

(a) quality of earnings ratio,

(b) capital acquisitions ratio, and

(c) free cash flow.

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MCGREGOR CORP. Statements of Financial Position As at December 31 2012 2011 Assets Gash $ 16,000 $ 4,000 Prepayments Trade receivables Merchandise inventory Equipment, at cost Less: Accumulated depreciation Total Assets Liabilities and Shareholders' Equity 40,000 27,000 28,000 20,000 9,000 5,000 60,000 24,000 (10,000) (7,000) $143,000 $73,000 Trade payables $ 10,000 $ 8,000 Income taxes payable 2,000 5,000 Wages payable -0- 15,000 Long-term notes payable 60,000 43,000 Common shares 7,000 1,000 Retained earrings 64.000 1,000 Total Liabilities and Shareholders' Equity $143.000 $73,000