4.1 (Total: 24 marks; 2 marks each) For each of the events listed below, select the category that best describes its effect on a statement of cash flows. Your categories are as follows: a. Cash provided/used by operating activities b. Cash provided/used by investing activities c. Cash provided/used by financing activities d. Not a cash flow item Events: _____ 1. Payment on long-term debt _____ 2. Issuance of bonds at a premium _____ 3. Collection of accounts receivable _____ 4. Cash dividends declared _____ 5. Issuance of shares to acquire land _____ 6. Sale of marketable securities (long-term) _____ 7. Payment of employees' wages _____ 8. Issuance of common shares for cash _____ 9. Payment of income taxes payable _____ 10. Purchase of equipment _____ 11. Purchase of treasury stock (common) _____ 12. Sale of real estate held as a long-term investment Question 4.2 (Total: 12 marks; 4 marks each) Financial statements for Space Galaxy Ltd. are presented below: Space Galaxy Ltd. Statement of Financial Position December 31, 2020 Assets Liabilities & Shareholders' Equity Cash $44,000 Accounts payable $28,000 Accounts receivable 39,000 Bonds payable 54,000 Buildings and equipment 154,000 Accumulated depreciation buildings and equipment (46,000) Common shares 69,000 Patents 24,000 Retained earnings 64,000 $215,000 $215,000 Space Galaxy Ltd. Statement of Cash Flows For the Year Ended December 31, 2020 Cash flows from operating activities Net income $60,000 Adjustments to reconcile net income to net cash provided by operating activities: Increase in accounts receivable $(19,000) Increase in accounts payable 7,000 Depreciationbuildings and equipment 12,000 Gain on sale of equipment (7,000) Amortization of patents 3,000 (4,000) Net cash provided by operating activities 56,000 Cash flows from investing activities Sale of equipment 14,000 Purchase of land (27,000) Purchase of buildings and equipment (52,000) Net cash used by investing activities (65,000) Cash flows from financing activities Payment of cash dividend (25,000) Sale of bonds 45,000 Net cash provided by financing activities 20,000 Net increase in cash 11,000 Cash, January 1, 2020 33,000 Cash, December 31, 2020 $44,000 At the beginning of 2020, the accounts payable balance was $21,000, and the bonds payable balance was $9,000. All of Space Galaxy's bonds have been issued at par. Required 1. Calculate the current cash debt coverage ratio 2. Calculate the cash debt coverage ratio 3. Calculate the free cash flow Question 4.3 (Total: 30 marks; -3 marks per error) The controller of Infinity Stone Corporation has provided you with the following information: Infinity Stone Corporation Comparative Statement of Financial Position As at December 31 2020 2019 Cash $20,500 $12,500 Accounts receivable 34,000 25,500 Inventories 20,000 30,000 Prepaid insurance 2,500 2,000 Equipment 102,000 90,000 Accumulated Depreciation: Equipment (22,500) (12,500) Total assets $156,500 $147,500 Accounts payable $23,000 $20,000 Wages payable 4,000 2,000 Interest payable 2,000 3,000 Income taxes payable 4,000 5,000 Long-term note payable 30,000 34,500 Common shares 65,000 65,000 Retained earnings 28,500 18,000 Total Liabilities and Shareholders Equity $156,500 $147,500 Additional information: Net income for the fiscal year was $13,500 Equipment that cost $10,000 and was sold for a gain of $1,000 during 2020. The equipment's accumulated depreciation was $7,000. Required 1. Prepare the operating activities section of a statement of cash flows using the indirect method. Question 4.4 (Total: 22 marks for completed statement; -2 marks per error) Drax Corporation has the following financial statements: Drax Corporation Income Statement For the Year Ended December 31, 2020 Net sales $165,000 Cost of goods sold 97,500 Gross profit 67,500 Operating expenses 27,500 Income from operations 40,000 Interest expense 3,500 Income before income taxes 36,500 Income taxes 11,000 Net income $ 25,500 Drax Corporation Comparative Statement of Financial Position As at December 31 Cash $15,000 $9,750 Accounts receivable 11,750 8,750 Inventories 16,500 11,750 Prepaid insurance 2,500 2,000 Equipment 25,500 33,500 Accumulated depreciationequipment (16,250) (17,750) Total assets $55,000 $48,000 Accounts payable $5,000 $6,750 Wages payable 2,000 2,000 Income taxes payable 3,000 1,000 Long-term note payable 0 8,750 Common shares 15,000 15,000 Retained earnings 30,000 14,500 Total liabilities and shareholders' equity $55,000 $48,000 Additional information: Equipment that cost $8,000 was sold for the carrying amount of $3,750 Dividends declared and paid were $10,000. Required 1. Prepare the operating activities section for the statement of cash flows using the direct method Question 4.5 (Total: 12 marks; 2 marks per line) The records of Groot Corp. for calendar 2020 reflected the following correct pre-tax amounts: Gain from discontinued operations, $50,000; Cash dividends declared and paid, $45,000; Retained earnings, January 1, 2020, $275,000, Correction of accounting error, $35,000 debit; Income before income taxes and before discontinued operations, $165,000. The average income tax rate of 40% applies to all items except the dividends. Required 1. Calculate the December 31, 2020 ending balance of retained earnings