Statement of Cash Flows—Indirect Method Refer to all of the facts in Problem 12-3A.

Presented here are comparative balance sheets:

Required

1. Prepare a statement of cash flows for 2010 using the indirect method in the Operating Activities section.

2. On the basis of your statement in (1), draft a brief memo to the president to explain why cash decreased during such a profitable year. Include in your explanation any recommendations for improving the company’s cash flow in future years.

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For the Year Ended December 31, 2010 $2,460,000 Sales revenue Cost of goods sold Gross profit Operating expenses Income before interest and taxes 1,400,000 $1,060,000 460,000 $ 600,000 100,000 $ 500,000 150,000 $ 350,000 Interest expense Income before taxes Income tax expense Net income