Question B: Statement of Cash Flows (13 marks: 23 minutes) The following unclassified statement of financial position relates to Lobo Inc. as at December 31: LOBO INC. Comparative Statement of Financial Position December 31 2020 2019 Assets Cash in bank $ 111,000 $ 120,000 Accounts receivable, net 230,000 303,000 Inventories, at cost 190,000 160,000 Prepaid expenses 34,700 0 Land 60,000 72,500 Plant and equipment, net 325.000 253,500 Total assets $950.700 $909.000 Liabilities and Shareholders' Equity Accounts payable $100,000 $ 40,000 Accrued liabilities 21.700 30,000 Dividends payable 38.000 0 Bonds payable, net 103,000 105,000 Common shares 600,000 600,000 Retained earnings 88,000 134,000 Total liabilities and shareholders' equity $950.700 $909.000 Lobo's condensed statement of earnings for the year ended December 31, 2020 showed the following information. LOBO INC. Statement of Earnings For the Year Ended December 31, 2020 Net sales Cost of sales Gross profit Operating expenses, including depreciation of $60,000 Interest expense Gain on sale of land Earnings (loss) before income tax Income tax recovery Net earnings (loss) $1,560,000 (925.000 635,000 (664,000) (8,000) 25,000 (12,000) 4,000 (8.000) Additional information: a) The land that was sold during the year had an original cost of $12,500. b) Equipment was acquired in 2020, and no disposals were made during the year. Required: 1. Prepare, in good form, the operating activities section of the statement of cash flows for the year ended December 31, 2020. Use the indirect method and show all relevant calculations. Do NOT prepare a complete statement of cash flows. (6 marks) 2. Calculate the amount of cash payments to suppliers of merchandise. The accounts payable relate only to purchases of merchandise for sale. (3 marks) 3. Prepare the investing activities section of the statement of cash flows for the year 2020. (4 marks) ) Marks Question C: Analysis of Financial Statements (14 marks; 25 minutes) The condensed statement of financial position of Infotech, Inc. as at December 31, 2020 is shown below: Infotech, Inc. Statement of Financial Position As at December 31, 2020 Assets Liabilities and Shareholders' Equity Cash $ 40,000 Current liabilities $ 80,000 Accounts receivable, aet 80,000 Long-term debt 120,000 Inventory 130,000 Common shares 200,000 Plant and equipment, net 250.000 Retained earnings 100.000 Total liabilities and Total assets $500.000 shareholders' equity $500.000 Net sales for 2020 were $800,000, including cash sales of $200,000, gross profit was $320,000, and net earnings were $40,000. The long- term debt was outstanding all year, and the interest expense for 2020 was $12,000. The company is subject to an income tax rate of 40%. On December 31, 2019, Infotech, Inc. had the following account balances: Accounts receivable (net), $76,000; inventory, $110,000, shareholders' equity, $260,000, and total assets, $440,000. Required (Round the results of your calculations to two decimal places): 1. Compute Infotech's current ratio at December 31, 2020 and indicate how it would change if the company paid $20,000 of its current liabilities as its first transaction of the year 2021? (2.5 marks) 2. Identify and calculate three profitability ratios for 2020. Explain what each ratio measures and its significance. (6 marks) 3. Identify and calculate two asset turnover ratios for 2020. Explain what each ratio measures and its significance. (4 marks) 4. Would the gross profit percentage increase, decrease or remain unchanged as a result of writing down the cost of ending inventory to its net realizable value? Explain. Calculations are not required. (1.5 marks) I of 24 16 Marks QUESTION A- Accounting for Bonds (16 marks; 28 minutes) Donald Ltd. issued 4-year, $40 million bonds on January 1, 2021. The stated interest rate is 5.5 percent, and interest is payable semi- annually on June 30 and December 31. The market interest rate for similar bonds was 6 percent at the time of Issuance. The company uses a discount or premium on bonds payable account and the effective interest method to amortize bond discount or premium. Use the tables provided with this exam for your present value calculations. Required (Round the results of your calculations to the nearest dollar): 1. Prepare the journal entry to record the issuance of the bonds on January 1, 2021. (3 marks) 2. Prepare the journal entry to record the interest payment on December 31, 2021. (4 marks) 3. Assume that on January 1, 2022, Donald repurchases one-half of the outstanding bonds on the open market at 93. Prepare the journal entry to record this transaction. Ignore the interest that would accrue for one day on January 1, 2022. (4 marks) 4. Show, in good form, how the bond-related information would be reported on a statement of financial position prepared immediately after this transaction, and on a statement of cash flows for the year 2022 based on the indirect method. (5 marks) A B I EE I have answered this question and will upload after the exam (type yes)