Aero Inc. had the following statement of financial position at the end of operations for 2019:

During 2020, the following occurred:

1. Aero liquidated its FV-NI investments portfolio at a loss of $5,000.

2. A parcel of land was purchased for $38,000.

3. An additional $30,000 worth of common shares was issued.

4. Dividends totalling $10,000 were declared and paid to shareholders.

5. Net income for 2020 was $35,000, including $12,000 in depreciation expense.

6. Land was purchased through the issuance of $30,000 in additional bonds.

7. At December 31, 2020, Cash was $70,200; Accounts Receivable was $42,000; and Accounts Payable was $40,000.

Instructions

a. Prepare the statement of financial position as it would appear at December 31, 2020.

b. Prepare a statement of cash flows for the year ended December 31, 2020, using the indirect method along with any necessary note disclosure. Assume dividends paid are treated as financing activities.

c. Calculate the current and acid-test ratios for 2019 and 2020.

d. Calculate Aero?s free cash flow and the current cash debt coverage ratio for 2020.

e. What is the cash flow pattern? Discuss the sources and uses of cash.

f. Use the analysis of Aero to illustrate how information in the statement of financial position and statement of cash flows helps the user of the financial statements.

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Aero Inc. Statement of Financial Position December 31, 2019 $ 20,000 $ 30,000 Cash Accounts payable Bonds payable Accounts receivable 21,200 41,000 Common shares 100,000 FV-NI investments 32,000 Retained earnings Equipment (net) 81,000 23,200 Land 40,000 $194,200 $194,200