Flight Training Corporation is a privately held firm that provides fighter pilot training under contracts with the U.S. Air Force and the 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 dumbfounded. I never had an inkling that there was a problem with cash.€™€™ Exhibit 3.28 presents comparative balance sheets for Years 1 through 4, and Exhibit 3.29 presents income statements for Years 2 through 4.

REQUIRED
a. Prepare a worksheet 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. Follow the format of Exhibit 3.12 in the text. 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 non current assets are investing transactions.
(3) Changes in deferred income taxes are operating transactions.
(4) Changes in other non current liabilities and treasury stock are financing transactions.
(5) The firm violated covenants in its borrowing agreements during Year 4. Therefore, the lenders can 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 through Year 4.
c. Comment on the relations among 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 the cash flow difficulties of Flight Training Corporation.

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Exhibit 3.28 Flight Training Corporation Balance Sheets (amounts in thousands) (Problem 3.29) December 31: Year 4 Year 3 Year 2 Year 1 CURRENT ASSETS $ 313 Cash 159 583 142 6,545 Accounts receivable 4,874 2,514 2,675 2,490 Inventories 5,106 1,552 602 Prepayments 665 829 469 57 $ 12,475 $ 8,800 $ 3,291 Total Current Assets $ 5,009 NONCURRENT ASSETS $17,809 (4,288) Property, plant and equipment Less accumulated depreciation $106,529 $76,975 $24,039 (17,231) (8,843) (5,713) Exhibit 3.28 (Continued) Net property, plant, and equipment $ 89,298 $68,132 $18,326 $13,521 Other assets 470 $ 665 $ 641 $ 1,112 Total Assets $102,243 $77,597 $23,976 $17,924 CURRENT LIABILITIES $ 12,428 $ 6,279 $ 993 $ 939 Accounts payable Notes payable Current portion of long-term debt 945 140 1,021 60,590 7,018 1,789 1,104 Other current liabilities 12,903 12,124 $26,366 2,423 1,310 Total Current Liabilities $ 85,921 $ 5,345 $ 4,374 NONCURRENT LIABILITIES Long-term debt 2$ $41,021 $ 9,804 $ 6,738 Deferred income taxes 900 803 - Other noncurrent liabilities 226 $16,178 Total Liabilities $ 85,921 $68,287 $11,112 SHAREHOLDERS' EQUITY Common stock $ 22 $ 21 34 20 Additional paid-in capital Retained earnings Treasury stock Total Shareholders' Equity Total Liabilities and Shareholders' Equity 16,516 5,685 4,569 4,323 (29) 3,802 3,208 2,469 (199) (199) $ 16,322 $ 9,310 $ 7,798 $23,976 $ 6,812 $102,243 $77,597 $17,924