Preparing and interpreting the statement of cash flows using the indirect method. (Adapted from a problem by L. Morrissey.) RV Suppliers, Inc., founded in January, Year 1, manufactures "Kaps." A "Kap" is a relatively low-cost camping unit attached to a pickup truck. Most units consist of an extruded aluminum frame and a fiberglass skin.

After a loss in its initial year, the company was barely profitable in Year 2 and Year 3. It realized more substantial earnings in Years 4 and 5, as the financial statements in Exhibits 4.35 and 4.36 show. However, in Year 6, ended just last month, the company suffered a loss of \(\$ 13,400\). Sales dropped from \(\$ 424,000\) in Year 5 to \(\$ 247,400\) in Year 6. The outlook for Year 7 is not encouraging. Potential buyers continue to shun pickup trucks in preference for more energy-efficient, small foreign and domestic automobiles.

How did the company finance its rapid growth during the year ended December 31, Year 5? What were the sources and uses of cash during the year? Similarly, how did the company manage its financial affairs during the abrupt contraction in business

during the year just ended last month? Property, plant, and equipment were sold each year at their book value. (Hint: Prepare a statement of cash flows for Year 5 and Year 6 to assist in responding to these questions.)

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EXHIBIT 4.35 ASSETS Cash Accounts Receivable Inventories Tax Refund Receivable Prepayments Total Current Assets Balance Sheet (all dollar amounts in thousands) (Problem 33) Property, Plant, and Equipment-Net (Note 1) Total Assets LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Bank Notes Payable Accounts Payable. Income Taxes Payable Other Current Liabilities Total Current Liabilities Shareholders' Equity Capital Stock Retained Earnings Total Shareholders' Equity Total Liabilities and Shareholders' Equity Note 1: Analysis of Changes In Property, Plant, and Equipment Balance in Property, Plant, and Equipment (net) at Beginning of Year Acquisitions Depreciation Expense Book Value of Property, Plant, and Equipment Sold Balance in Property, Plant, and Equipment (net) at End of Year Dec 31 Year 4 Dec 31 Year 5 Dec 31 Year 6 $ 14.0 $ 12.0 28.8 55.6 $ 5.2 24.2 54.0 85.6 81.0 0 0 5.0 4.8 7.4 5.6 $101.6 30.2 $160.6 73.4 $121.0 72.2 $131.8 $234.0 $193.2 $ 10.0 31.6 $ 52.0 $ 70.0 53.4 17.4 5.8 7.0 4.2 6.8 4.4 $ 51.6 $119.2 $ 91.8 $ 44.6 $ 44.6 $ 44.6 35.6 70.2 56.8 $ 80.2 $114.8 $101.4 $131.8 $234.0 $193.2 Year 4 Year 5 Year 6 $ 18.9 $ 30.2 $ 73.4 13.4 48.4 12.2 $ 30.2 (1.7) (4) 5 73.4 (4.8) (8.0) (.4) (5.4) $ 72.2