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1. The 2020 and 2019 comparative Balance Sheets and 2020 Income Statement of Lorna Jewelry Corp. follow:

Lorna Jewelry Corp. Comparative Balance Sheets
	December 31		Increase
	2020	2019	(Decrease)
Current assets:
Cash and cash equivalents	$17,600	$5,000	$12,600
Accounts receivable	45,500	44,500	1,000
Inventories	79,100	67,500	11,600
Prepaid expenses	2,100	6,000	(3,900)
PPE:
Land	69,100	21,900	47,200
Equipment, net	53,100	49,200	3,900
Total assets	$266,500	$194,100	$72,400
Current liabilities:
Accounts payable	$35,800	$25,600	$10,200
Salary payable	22,000	15,600	6,400
Other accrued liabilities	22,900	24,200	(1,300)
Long-term liabilities:
Notes payable	50,000	37,000	13,000
Shareholders equity:
Share capital, no-par	88,600	64,300	24,300
Retained earnings	47,200	27,400	19,800
Total liabilities and shareholders equity	$266,500	$194,100	$72,400

Lorna Jewelry Corp. Income Statement	Year Ended December 31, 2020
Revenues:
Sales revenue		$448,000
Expenses:
Cost of goods sold	$185,300
Salary expense	76,800
Depreciation expense	17,500
Other operating expense	49,700
Interest expense	24,900
Income tax expense	29,800
Total expenses		384,000
Net income		$64,000

Lorna Jewelry had no noncash investing and financing transactions during 2020. During the year, there were no sales of land or equipment, no payment of notes payable, no retirements of shares, and no treasury share transactions.

Requirements:

1. Prepare the 2020 statement of cash flows, formatting operating activities by using the indirect method.

2. Prepare the 2020 statement of cash flows by using the direct method.

3. Evaluate Lorna Jewelrys cash flows for the year, including its free cash flow and cash realization ratio.

Review all three categories of cash flows and give the reason for your evaluation.

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