QUESTION 1-25 MARKS The following comparative balance sheets as at December 31, 2012 and 2013 and other information are shown for Groove International Inc: Assets 2013 2012 Cash $40,000 $15,000 Accounts receivable Allowance for doubtful accounts Inventory Investments 12,500 10,000 (3,000) (4,500) 12,000 9,000 0 3,000 Building Accumulated depreciation - building Equipment Accumulated depreciation - equipment Goodwill Total 0 29,750 0 (6,000) 45,000 20,000 (2,000) (4,500) 5,000 6,250 109,500 78,000 Liabilities and shareholders' equity Accounts payable 5,000 3,000 Dividends payable 0 5,000 Long-term notes payable 34,000 29,000 Common stock 49,500 33,000 Retained earnings 21,000 8,000 Total 109,500 78,000 Page 2 TURN OVER QUESTION 1 (Continued) Additional data related to 2013 are as follows. 1. Equipment that had cost $11,000 and was 40% depreciated at time of disposal was sold for $2,500. 2. $10,000 of the long-term note payable was paid by issuing common stock. 3. Cash dividends paid were $5,000. 4. On January 1, 2013, the building was completely destroyed by an earthquake. Insurance proceeds on the building were $35,000. 5. Investments (available-for-sale) were sold at $2,000 above their cost. 6. Cash was paid for the acquisition of equipment. 7. A long-term note for $16,000 was issued for the acquisition of equipment. Required: a) Prepare a statement of cash flows, using the indirect method, for the year ending December 31, 2013. (21 marks) b) As a possible lender to Groove International Inc, briefly explain whether you would be likely to lend money to Groove International Inc based on its financial statements. (4 marks)