Preparing and interpret the statement of cash flows. Irish Paper Company (Irish) manufactures and markets various paper products around the world. Paper manufacturing is a capital-intensive activity. A firm that does not adequately use its manufacturing capacity will experience poor operating performance. Sales of paper products tend to be cyclical with general economic conditions, although consumer paper products are less cyclical than business paper products.

Exhibit 15.16 on page 753 presents comparative income statements and Exhibit 15.17 on page 754 presents comparative balance sheets for Irish Paper Company for 2007, 2008, and 2009. Additional information appears below amounts in millions).

(1)

(2) Depreciation expense was $306 million in 2007, $346 million in 2008, and $353 million in 2009.
(3) During 2007, Irish purchased outstanding stock warrants for $201 million. It recorded the transaction by debiting the Common Stock account.
(4) During 2007, Irish sold timberlands at a gain. It received cash of $5 million and a long-term note receivable for $220 million, which it includes in Other Assets on the balance sheet.
(5) In addition to the preceding cash expenditures. Irish acquired property, plant, and equipment during 2008 costing $221 million by assuming a long-term mortgage payable.
(6) During 2009, Irish resold treasury stock for an amount greater than its cost.
(7) Changes in Other Assets are investing activities.
a. Prepare T-account work sheets for a statement of cash flows for Irish for 2007, 2008, and 2009.
b. Prepare a comparative statement of cash flows for Irish for 2007, 2008, and 2009 using the indirect method.
c. Comment on the pattern of cash flows from operating, investing, and financing activities for each of the threeyears.

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Irish Paper Company Comparative Income Statements (all dollar amounts in millions) (Problem 12) EXHIBIT 15.16 2007 2009 2008 Sales .... $4,976 $5,356 $5,066 Equity in Earnings of Affiliates Interest Income ..... 30 38 31 60 23 34 Gain (Loss) on Sale of Property, Plant, and Equipment . Total Revenues. Cost of Goods Sold. Selling Expenses Administrative Expenses (34) 19 221 $5,032 $5,436 $5,352 $3,388 $3,721 $3,493 1,005 925 857 581 414 303 Interest Expense 221 199 158 Income Tax Expense (21) 165 Total Expenses $5,174 $5,267 $4,976 $ 169 Net Income... $ 376 $ (142) Irish Paper Company Comparative Balance Sheets (all dollar amounts in millions) (Problem 12) EXHIBIT 15.17 2006 2009 2008 2007 ASSETS $ 114 Cash.. $ 184 $ 49 $ 374 Accounts Receivable (net) 670 829 723 611 Inventories 571 735 581 522 Prepayments 56 54 54 108 $ 1,407 $ 1,615 $ 1,481 $ 1,732 Total Current Assets Investments in Affiliates 322 333 375 254 Property, Plant, and Equipment Accumulated Depreciation 5,969 7,172 7,079 5,272 (2,977) (2,392) (2,698) (2,160) Other Assets . 484 465 387 175 $ 6,900 $ 6,493 $ 5,746 $ 5,156 Total Assets LIABILITIES AND SHAREHOLDERS' EQUITY Accounts Payable ... Current Portion of Long-Term Debt $ 992 $ 1,314 $ 1,178 $ 920 158 334 221 129 Other Current Liabilities 38 83 93 98 $ 1,510 $ 1,595 $ 1,306 $ 1,147 Total Current Liabilities Long-Term Debt .... 2,333 2,455 1,678 1,450 Deferred Income Taxes 661 $ 4,504 668 694 607 $ 3,204 $ 4,718 $ 3,678 Total Liabilities Preferred Stock %24 Common Stock 439 432 428 629 Retained Earnings 1,557 1,758 1,648 1,331 Treasury Stock Total Shareholders' Equity Total Liabilities and Shareholders' Equity (14) $ 1,989 $ 6,493 (15) $ 2,182 $ 6,900 (15) $ 2,068 $ 5,746 (15) $ 1,952 $ 5,156