Carpet land City reported net income of $78,500 for the year ended December 31, 2017. The following items were included on Carpet land's balance sheet at December 31, 2017 and 2016:

____________________________ 12/31/17 _____________ 12/31/16

Cash ................................... $ 14,400 ..................... $26,300

Trade accounts payable ............ 23,900 ......................... 93,700

Inventories .......................... 105,500 .........................84, 900

Carpet land uses the indirect method to prepare its statement of cash flows. Carpet land does not have any other current assets or current liabilities and did not enter into any investing or financing activities during 2017.

Required

1. Prepare Carpet land's 2017 statement of cash flows.

2. Draft a brief memo to the president to explain why cash decreased during a profitable year.