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