The 2020 comparative income statement and the 2020 comparative balance sheet of Eclipse Golf Inc. (shown below) have just been distributed at a meeting of the company’s board of directors.

In discussing the company’s results of operations and year-end financial position, the members of the board raise a fundamental question: Why is the cash balance so low? This question is especially puzzling to the board members because 2020 showed record profits. As the controller of the company, you must answer the question.

Required

1. Prepare a cash flow statement for 2020 in the format that best shows the relationship between net income and operating cash flow. The company sold no capital assets or long-term investments and issued no note payable during 2020. The changes in all current accounts except short-term note payable arose from operations. There were no non-cash financing and investing transactions during the year. Show all amounts in thousands. Amortization expense on the patent was $5,500.

2. Answer the board members’ question: Why is the cash balance so low? In explaining the business’s cash flows, identify two significant cash receipts that occurred during 2019 but not in 2020. Also point out the two largest cash payments during 2020.

3. Considering net income and the company’s cash flows during 2020, was it a good year or a bad year for Eclipse Golf Inc.? Give your reasons.

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ECLIPSE GOLF INC. Income Statement For the Years Ended December 31, 2020 and 2019 (amounts in thousands) Revenues and gains 2020 2019 Sales revenue $222.0 $155.0 Gain on sale of equipment (sale price, $17.5) 9.0 Total revenues and gains 222.0 164.0 Expenses and losses Cost of goods sold 110.5 81.0 Salaries expense 24.0 14.0 Amortization expense 28.5 16.5 Interest expense 6.5 10.0 Loss on sale of land (sale price, $30.5) 17.5 Total expenses and losses 169.5 139.0 Net income $ 52.5 $ 25.0