Question 3 (40 marks)

The comparative statement of financial positions and statement of profit or loss of Veronica Electronics Limited are as follows:

Required:

(a) Prepare a statement of cash flows for the year ended 2020 using the indirect method.

(b) Briefly explain why the net income of the company was positive but the cash flows of the company decreased in 2020.

Question 3 (40 marks) The comparative statement of financial positions and statement of profit or loss of Veronica Electronics Limited are as follows: 2019 S Veronica Electronics Limited Statement of financial positions /Balance Sheets At 31 December 2020 $ Assets: Long-term investments 169,700 Equipment 826,500 Accumulated depreciation (100,650) Cash 351,801 Accounts receivable 94 540 Merchandise inventory 219.375 Total assets 1.561.266 Accounts payable 170,481 Income taxes payable 32,175 Bonds payable 146.250 Total liabilities 348.906 171,200 436,500 (93,600) 369,120 86,200 185,130 1.154,550 121.140 30,600 198.000 349.740 Equity: Ordinary shares captial Retained earnings Total equity 390,000 822 360 1.212.360 315,000 489,810 804.810 Total liabilities and equity 1.561.266 1.154.550 Veronica Electronic Limited Statement of profit or loss For Year Ended 31 December 2020 1,770,000 542,700 88,200 144.000 6,000 (780,900) Sales Cost of goods sold Depreciation expense (Equipment) Other operating expenses Interest expense Other gains (losses): Loss on sale of equipment Income before taxes Income taxes expense Net income (25.200) 963.900 (82.950) 880.950 Additional Information: (1) There was no gain or loss on the sales of the long-term investments, nor on the bonds retired. (2) Old equipment with an original cost of $113,250 was sold with a loss. (3) Additional ordinary shares were issued for cash. Required: (a) Prepare a statement of cash flows for the year ended 2020 using the indirect method (b) Briefly explain why the net income of the company was positive but the cash flows of the company decreased in 2020