Statement of Cash Flows—Direct Method The income statement for Astro Inc. for 2008 is as follows:

Other information is as follows:

a. Dividends of $35,000 were declared and paid during the year.

b. Operating expenses include $70,000 of depreciation.

c. Land and plant and equipment were acquired for cash, and additional stock was issued for cash. Cash also was received from additional bank loans.
The president has asked you some questions about the year’s results. He is disturbed with the $100,000 net loss for the year. He notes, however, that the cash position at the end of the year is improved. He is confused about what appear to be conflicting signals: “How could we have possibly added to our bank accounts during such a terrible year of operations?”
Required 1. Prepare a statement of cash flows for 2008 using the direct 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 increased during such an unprofitable year. Include in your memo your recommendations for improving the company’s bottom line.

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Sales revenue Cost of goods sold Gross profit Operating expenses Loss before interest and taxes Interest expense Net loss Presented here are comparative balance sheets: For the Year Ended December 31, 2008 $500,000 400,000 $ 100,000 180,000 $ (80,000) 20,000 $(100,000)