Question 4.4 (Total: 18 marks for completed statement; -3 marks per error)

Palm Tree Limited has the following financial statements:

Palm Tree Limited Income Statement For the Year Ended December 31, 2022
Net sales	$165,000
Cost of goods sold	97,500
Gross profit	67,500
Operating expenses	27,500
Income from operations	40,000
Interest expense	3,500
Income before income taxes	36,500
Income Tax	11,000
Net Income	$ 25,500

Palm Tree Limited Income Statement For the Year Ended December 31, 2022
	2022	2021
Cash	$15,000	$9,750
Accounts receivable	11,750	8,750
Inventories	16,500	11,750
Prepaid insurance	2,500	2,000
Equipment	25,500	33,500
Accumulated depreciationequipment	(16,250)	(17,750)
Total assets	$55,000	$48,000
Accounts payable	$5,000	$6,750
Wages payable	2,000	2,000
Income taxes payable	3,000	1,000
Long-term note payable	0	8,750
Common shares	15,000	15,000
Retained earnings	30,000	14,500
Total liabilities and shareholders' equity	$55,000	$48,000

Additional information

• Equipment that cost $8,000 was sold for the carrying amount of $3,750
• Dividends declared and paid were $10,000.

Required

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

Question 4.5 (Total: 12 marks; 2 marks per line)

The records of Groot Corp. for calendar 2020 reflected the following correct pre-tax amounts:

• Gain from discontinued operations, $50,000;
• Cash dividends declared and paid, $45,000;
• Retained earnings, January 1, 2020, $275,000,
• Correction of accounting error, $35,000 debit;
• Income before income taxes and before discontinued operations, $165,000.

The average income tax rate of 40% applies to all items except the dividends.

Required

Calculate the December 31, 2020 ending balance of retained earnings.