Medicinal Plant Ltd. (MPL) is a privately held distributor of medicinal marijuana tablets. The Vancouver Island-based company is well established and is currently managed by its founder, Dylan Roberts. The company’s financial statements are presented below, together with some additional information.

Additional information:

MEDICINAL PLANT LTD.Other Selected Financial Information for the Year Ended December 31, 2020

1. Total sales in 2020 were consistent with the prior years, and the company’s dividend policy has remained consistent for the past five years.

2. During 2020, MPL sold a piece of equipment for $2.5 million. The equipment had originally cost $4.2 million and had a net carrying amount of $2.2 million at the time of sale.

3. On August 1, 2020, MPL’s board of directors approved the retirement of bonds with a carrying amount of $4.0 million through the issuance of common shares.

Required

MPL’s management shareholders have asked you to prepare the statement of cash flows for MPL using either the direct or indirect method for determining cash flows from operating activities. Prepare the statement for them.

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MEDICINAL PLANT LTD. Statement of Income As at December 31, 2020 Sales revenue $45,000,000 Cost of goods sold 29,500,000 Gross profit 15,500,000 Wages ex pense 1,800,000 Depreciation expense 1,500,000 Interest expense 1,350,000 Income tax expense 1,600,000 Gain on sale of equipment (300,000) $ 9,550,000 Net income MEDICINAL PLANT LTD. Statement of Financial Position As at December 31 2020 2019 Assets Current assets: $ 5,600,000 $ 6,400,000 Cash Accounts receivable (net) 16,000,000 13,600,000 Inventory 20,000,000 17,000,000 Total current assets 41,600,000 37,000,000 Equipment 42,000,000 45,000,000 Accumulated depreciation, equipment (8,750,000) $77,850,000 (9,250,000) Total assets $69,750,000 Liabilities and shareholders' equity Current liabilities: $ 7,750,000 $ 8,000,000 Accounts payable Wages payable 1,800,000 2,000,000 Total current liabilities 9,550,000 10,000,000 Bonds payable 24,000,000 28,000,000 Common shares 12,000,000 8,000,000 Retained earnings 23,750,000 32,300,000 Total liabilities and shareholders' equity $77,850,000 $69,750,000