Villa Corporation (VC) is a private company that follows ASPE.The company's policy is to report all cash flows arising from interest and dividends as operating activities. The company's activities for the year ended December 31, 2020 included the following:

(a)VC reported income before income taxes of $400,000. Income tax expense was $50,000.

(b)Retained earnings increased by $340,000 for the year; the dividends payable account increased by $5,000.

(c)Income taxes payable increased by 2,000 during the year.

(d)Interest expense for the year was $20,000; the interest payable account increased by $12,000.

(e)Accounts receivable decreased by $18,000 and accounts payable increased by $40,000 during the year.

(f)Inventory increased by $14,000 during the year.

(g)VC sold equipment with a net book value of $40,000 for $42,000 cash.

(h)VC sold a long-term investment for $12,000; the book value of the investment was $15,000.

(i)Depreciation expense for the year totaled $22,000.

(j)VC recorded a goodwill impairment loss of $15,000 during the year.

(k)VC acquired $200,000 in equipment by way of a $20,000 cash down payment and a $180,000 loan from its local bank.

Required:

(a)Prepare the cash flows from operating activities section of the Cash Flow Statement for Villa Corporation for the year ended December 31, 2020 using the indirect method.(8 marks)

(b)For each activity described in this question that is not classified as an operating activity, explain how the activity and the related cash flow would be reported in Villa Hospitality's Cash Flow Statement. (6 marks)