30, 2019: Jazzec Ltd Statement of Financial Position As at September 30, 2019 2018 Cash 200,000 50,000 Accounts Receivable (Net) 300,000 375,000 Inventory 825,000 800,000 Prepaid Insurance Expenses 20,000 25,000 Equipment Accumulated Depreciation 2,500,000 2,000,000 (700,000) (500,000) 3.145.000 2.750.000 Accounts Payable Salaries & Wages Payable Income Tax Payable Accrued Interest Payable Bonds Payable due July 31, 2022 Common Shares Retained earnings Total liabilities and shareholder's equity 500,000 300,000 120,000 17,000 400,000 1,378,000 430,000 480,000 315,000 115,000 20,000 450,000 1,140,000 230,000 3,145,000 2,750,000 Jazzec Ltd Income Statement For the year ended September 30, 2019 $ Sales Less: Cost of goods sold Gross Profit 5,000,000 3,500,000 1,500,000 Less Expenses: Salaries & Employee Benefits Depreciation Expense Interest Expense Insurance Income Tax Expense Net Profit 600,000 200,000 150,000 100,000 250,000 1,300,000 200.000 Additional Information: - No equipment was sold during the year - No dividends were declared and paid during the year Required: a) Prepare the operating activities section of the statement of cash flows using the direct method. (15 marks) b) Calculate the company's current debt coverage ratio and free cash flow. Comment on the company's cash flow liquidity. (5 marks) 30, 2019: Jazzec Ltd Statement of Financial Position As at September 30, 2019 2018 Cash 200,000 50,000 Accounts Receivable (Net) 300,000 375,000 Inventory 825,000 800,000 Prepaid Insurance Expenses 20,000 25,000 Equipment Accumulated Depreciation 2,500,000 2,000,000 (700,000) (500,000) 3.145.000 2.750.000 Accounts Payable Salaries & Wages Payable Income Tax Payable Accrued Interest Payable Bonds Payable due July 31, 2022 Common Shares Retained earnings Total liabilities and shareholder's equity 500,000 300,000 120,000 17,000 400,000 1,378,000 430,000 480,000 315,000 115,000 20,000 450,000 1,140,000 230,000 3,145,000 2,750,000 Jazzec Ltd Income Statement For the year ended September 30, 2019 $ Sales Less: Cost of goods sold Gross Profit 5,000,000 3,500,000 1,500,000 Less Expenses: Salaries & Employee Benefits Depreciation Expense Interest Expense Insurance Income Tax Expense Net Profit 600,000 200,000 150,000 100,000 250,000 1,300,000 200.000 Additional Information: - No equipment was sold during the year - No dividends were declared and paid during the year Required: a) Prepare the operating activities section of the statement of cash flows using the direct method. (15 marks) b) Calculate the company's current debt coverage ratio and free cash flow. Comment on the company's cash flow liquidity