A major shareholder of Systems Unlimited Inc., Phil Wang, is perplexed. The 2020 income statement showed a healthy profit of $280 thousand. Yet, when Linda Lewis, the bank manager and a friend of Phil?s, called to let him know that the bank had just reviewed the March 31, 2020, statements, she had said, ?Phil, I just wanted to give you a heads-up. We?re extremely concerned about the message your 2020 statement of cash flows is sending. We may have to call in the secured loan unless the new company manager, Martha Shewart, has some reasonable explanations. I?m phoning her next.?

When asked, Martha Shewart says, ?That?s correct, Linda. We sold some of the unsecured manufacturing equipment. It cost $245 thousand and we got $150 thousand. No, it didn?t go for book value; we incurred a loss of $50 thousand ... where on the income statement? It?s in Other expenses. Don?t worry, Linda, a friend of mine, Ronald Trump, is going to sell us cheaper equipment. It?s on order. I signed the contract and it will be delivered in April.? After the conversation, Martha Shewart slams the phone down and thinks, ?I own 20% of the shares in this company; how dare anybody question my actions?!?

Required

1. Prepare a statement of cash flows (applying the indirect or direct method)* for the year ended March 31, 2020.

2. Using the elements of critical thinking described on the inside front cover, identify and discuss the problem, goal, facts, and conclusion, while keeping in mind that it is best not to jump to conclusions.

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Systems Unlimited Inc. Comparative Balance Sheet Information Systems Unlimited Inc. Income Statement March 31 For Year Ended March 31, 2020 (thousands) (thousands) $1,400 2020 2019 Sales. $ 30 $ 75 Cash. Cost of goods sold. 950 $ 450 Accounts receivable (net). Gross profit. 490 50 244 Inventory. 80 Operating expenses: Depreciation expense Other expenses. $ 5 Property, plant, and equipment (net) 100 305 . Accounts payable. 40 115 22 Total operating expenses. Profit from operations. Income tax payable. 14 120 Bank loan payable (secured). $ 330 120 Common shares 390 390 Income tax expense. 50 $ 280 Retained earnings. 300 Profit 96