Effects of Changes in Receivable Balances on Statement of Cash Flows Stegner Inc. reported net income of $130,000 for the year ended December 31, 2008. The following items were included on Stegner’s balance sheets at December 31, 2008 and 2007:

Stegner uses the indirect method to prepare its statement of cash flows. Stegner does not have any other current assets or current liabilities and did not enter into any investing or financing activities during 2008.
Required 1. Prepare Stegner’s 2008 statement of cash flows.
2. Draft a brief memo to the owner to explain why cash decreased during a profitable year.

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12/31/08 12/31/07 Cash $105,000 $110,000 Accounts receivable 223,000 83,000 Notes receivable 95,000 100,000