Carpetland City reported net income of $78,500 for the year ended December 31, 2010. The following items were included on Carpetland€™s balance sheet at December 31, 2010 and 2009:

Carpetland uses the indirect method to prepare its statement of cash flows. Carpetland does not have any other current assets or current liabilities, and did not enter into any investing or financing activities during 2010.

Required
1. Prepare Carpetland€™s 2010 statement of cash flows.
2. Draft a brief memo to the president to explain why cash decreased during a profitable year. Alternate Multi-ConceptProblems

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12/31/10 12/31/09 Cash Trade accounts payable Inventories $ 14,400 23.900 105,500 $26,300 93,700 84,900