Question 4.4 (Total: 22 marks for completed statement; -2 marks per error)

Drax Corporation has the following financial statements:

Drax Corporation Income Statement
For the Year Ended December 31, 2020
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 taxes	11,000
Net income	$ 25,500

Drax Corporation Comparative Statement of Financial Position
As at December 31
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

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