Preparing and interpreting a statement of cash flows using a T-account work sheet. Flight Training Corporation, a private-sector firm, provides fighter pilot training under contracts with the U.S. Air Force and U.S. Navy. The firm owns approximately 100 Lear jets that it equips with radar jammers and other sophisticated electronic devices to mimic enemy aircraft. The company recently experienced cash shortages to pay its bills. The owner and manager of Flight Training Corporation stated: "I was just dumbfound. I never had an inkling that there was a problem with cash."

Exhibit 4.29 presents comparative balance sheets for Flight Training Corporation on December 31, Year 1 through Year 4 and Exhibit 4.30 presents income statements for Year 2 through Year 4.

a. Prepare T-account work sheets for the preparation of a statement of cash flows for Flight Training Corporation for each of the years ending December 31, Year 2 through Year 4. Notes to the financial statements indicate the following:

(1) The firm did not sell any aircraft during the three-year period.

(2) Changes in Other Noncurrent Assets are investing transactions.

(3) Changes in Other Noncurrent liabilities are operating transactions.

(4) The firm violated covenants in its borrowing agreements during Year 4. The lenders can therefore require Flight Training Corporation to repay its long-term debt immediately. Although the banks have not yet demanded payment, the firm reclassified its long-term debt as a current liability.

b. Prepare a comparative statement of cash flows for Flight Training Corporation for each of the years ending December 31, Year 2 to Year 4.

c. Comment on the relation between net income and cash flow from operations and the pattern of cash flows from operating, investing, and financing activities for each of the three years.

d. Describe the likely reasons for Flight Training Corporation's cash flow problems.

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EXHIBIT 4.29 Current Assets Ca Accounts Receivable Inventories.. Prepayments Total Current Assets Property, FLIGHT TRAINING CORPORATION Balance Sheets fall collar amounts in thousanes) (Problem 30) Plant, and Equipment Less Accumulated Depreciation. Net Other Noncurrent Assets Total Assets Current Liabilities December 31 Year 1 Year 2 Year 3 Your 4 $ 142 $ 313 $ 583 $ 159 2,490 2,675 4,874 6,545 602 1,552 2,514 5,106 57 469 829 685 $ 3,291 $ 5,009 S 8,800 $ 12,475 $17,809 (4.288) $13,521 $ 1.112 $17.924 $24,039 $76,975 (8,843) $68,132 (5,713) $18,326 $ 641 $ 666 $23,976 $77.597 $106,529 (17.231) $ 89,298 $ 470 $102,243 Accounts Payable S 939 $ 993 Notes Payable 1.021 140 $ 6,279 945 $ 12,428 Current Portion of Long-term Debt 1.104 1,789 7,018 Other Current Liabilities 1.310 2.423 12.124 60,590 12,903 Total Current Liabilities Noncurrent Liabilities Long-term Debt ... Other Noncurrent Liabilities Total Liabilities Shareholders' Equity Common Stock. $ 4,374 $ 5,345 $26,366 $ 85,921 6,738 $11,112 9,504 1,029 $16,178 41,021 900 $68,287 $ 85,921 $ 20 $ 21 22 Additional Paid-in Capital Retained Earnings..... Total Shareholders' Equity.... Total Liabilities and Shareholders' Equity 4,323 2,409 $ 6,812 $17,924 4,569 3,208 5,486 34 16.317 3,802 (29) $ 7,798 $ 9,310 $ 16,322 $23.976 $77.597 $102,243 www