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E$5\mathrm{.}17($LO $8,9)($Preparation of Statement of Cash Flows$)$ The comparative statement of financial position of Dropafix Inc. as at June $30,2023,$ and a statement of comprehensive income for the $2023$ fiscal year follow:

Dropafix Inc. Statement of Financial Position June $30,2023$

$$

June $30$

Assets

$2023$

$2022$

Cash

$ $20,000$

$ $38,000$

Accounts receivable

$86,000$

$74,000$

Inventory

$103,000$

$102,000$

Prepaid expenses

$2,000$

$6,000$

FV$$OCI investments

$47,000$

$45,000$

Equipment

$173,000$

$159,000$

Accumulated depreciation$$equipment

$(35,000)$

$(25,000)$

Total

$$396,000$

$$399,000$

Liabilities and Shareholders$$ Equity

$$

$$

Accounts payable

$$115,000$

$$100,000$

Income tax payable

$2,000$

$3,000$

Dividends payable

$5,000$

$0$

Long$$term notes payable

$84,000$

$119,000$

Common shares

$31,000$

$24,000$

Retained earnings

$148,000$

$144,000$

Accumulated other comprehensive income

$11,000$

$9,000$

Total

$$396,000$

$$399,000$

Dropafix Inc. Statement of Comprehensive Income For the Year Ended June $30,2023$

Net sales

$$323,000$

Cost of goods sold

$175,000$

Gross profit

$148,000$

Operating expenses

$120,000$

Income from operations

$28,000$

Interest expense

$9,000$

Income before income tax

$19,000$

Income tax

$6,000$

Net income

$13,000$

Other comprehensive income Unrealized gain or loss$$OCI

$2,000$

Comprehensive income

$ $15,000$

Additional information:

Dropafix follows IFRS. Assume that interest is treated as an operating activity for purposes of the statement of cash flows.

Operating expenses include $$10,000$ in depreciation expense.

There were no disposals of equipment during the year.

Common shares were issued for cash.

During the year, Dropafix acquired $$8,000$ of equipment in exchange for long$$term notes payable.

Instructions

Prepare the statement of cash flows for Dropafix for the year ended June $30,2023,$ using the indirect method along with any necessary note disclosure.

Prepare the operating activities section of the statement of cash flows for Dropafix using the direct method.

An icon reads, Digging Deeper. From the perspective of a creditor holding several of the long$$term notes in substantial amounts owed by Dropafix, how do you view the cash management demonstrated by$$Dropafix$?$

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