CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax $ 6,000

Adjustments for:
Amortization of Discount on Bonds Payable 1,000
Depreciation/Amortization expense 31,000
Holding loss on securities 2,500
Gain from sale of securities (3,000)
Gain from sale of equipment (1,000)
Operating income before changes in working capital $ 36,500
Changes in operating assets and liabilities
Decrease (increase) in:
Accounts receivable 22,500
Inventory (60,000)
Prepaids 150
Increase (decrease) in:
Accounts payable 15,000
Accrued liabilities 5,700
Cash generated from operations $ 19,850
Tax paid (11,000)
Net cash provided by operating activities $ 8,850

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of Intangible Assets (5,000)
Acquisition of new securities (12,000)
Sale of securities 8,000
Sale of equipment 11,000
Purchase of equipment (35,000)
Net cash provided by investing activities $ (33,000)

CASH FLOWS FROM FINANCING ACTIVITIES

Payment of long-term debt (10,000)
Issuance of new stocks 30,000
Payment of cash dividend (6,000)
Treasury stock 2,000
Net cash provided by financing activities $ 16,000

NET INCREASE (DECREASE) IN CASH $ (8,150)

CASH BALANCE, END OF YEAR 1 22,000
CASH BALANCE, END OF YEAR 2 $ 13,850
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers (Note 1) $ 200,000
Cash paid to merchandise creditors (Note 2) (145,000)
Cash paid for expenses (Note 3) (27,150)
Cash generated from operations $ 27,850
Interest paid (Note 4) (8,000)
Tax paid (Note 5) (11,000)
Net cash provided by operating activities $ 8,850
NOTES:
Note 1 Accounts receivable, Year 1 34,000
Add: Sales revenue 180,000
Less: Accounts receivable, Year 2 (11,500)
Less: Accounts written of (2,500)
Cash received from customers 200,000

Note 2 Cost of goods sold 100,000

Add: Inventory, Year 2 101,000
Less: Inventory, Year 1 (41,000)
Purchases 160,000
Add: Accounts payable, Year 1 20,000
Less: Accounts payable, Year 2 (35,000)
Cash paid to merchandise creditors 145,000

Note 3 Operating expenses 33,000

Add: Prepaids, Year 2 7,850
Less: Prepaids, Year 1 (8,000)
Add: Accrued liabilities, Year 1 16,500
Less: Accrued liabilities, Year 2 (22,200)
Cash paid for expenses 27,150

Note 4 Interest expense 9,000

Less: Amortization of discount on bonds payable (1,000)
Interest paid 8,000

Note 5 Tax expense 1,000

Add: Taxes payable, Year 1 10,000
Less: Taxes payable, Year 2 (14,000)
Taxes paid (3,000)