Refer to the example of Tradewinds Company illustrated by the timeline in Exhibit 3-2 and the facts given at the beginning of Section B, €œAccrual versus Cash Accounting.€ In addition, assume that the remaining ships are sold for $3.5 million each just before the end of Year 4 in preparation for the dissolution of the company.

Required:
a. Complete the financial statements for Years 3 and 4 using the tables below.
b. In the following tables, complete the column for €œ4-Year Total.€ Compare the 4-year totals for cash flow and income. Comment on the similarities and differences.

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4-Year $ millions Total Year 1 Year 2 Year 3 Year 4 Cash flow statement Operations Inflow from sale of goods 5 Outflow from operating costs (3) (2) Cash flow from operations Cash flow from investing activities (15) Cash flow from financing activities 20 Net cash flow for the year 3 Cash at beginning of year 7 Cash at end of year 10 3. 4-Year millions) Year 1 Year 2 Year 3 Year 4 Total Statement of income and retained earnings Revenue ($5m/arrival) 5.0 5.0 Operating expenses ($1m/ arrival) (1.0) (1.0) Depreciation ($0.5m/ arrival) (0.5) (0.5) Write-off of sunken ship 0.0 (4.5) Write-off of prepaid expenses 0.0 (1.0) Net income (loss) 3.5 (2.0) Retained earnings at beginning of year 0.0 3.5 Retained earnings at end of year 3.5 1.5 Balance sheet Cash 7.0 10.0 Prepaid expenses 2.0 2.0 Ships at cost 15.0 10.0 Less: accumulated depreciation (0.5) (0.5) Total assets 23.5 21.5 Contributed capital 20.0 20.0 Retained earnings 3.5 1.5 Total equity 23.5 21.5