PREPARING A PROSPECTIVE STATEMENT OF CASH FLOWS Jane and Harvey Wentland have decided to open a retail athletic supply store, Fitness Outfitters, Inc. They will stock clothing, shoes, and supplies used in running, swimming, bicycling, weight lifting, and other exercise and athletic activities. During their first year of operations, 2009, they expect the following results. (Subsequent years are expected to be more successful.)

Sales revenue $629,000 Less: Cost of goods sold 291,000 Gross margin $338,000 Less: Operating expenses 355,000 Net loss $ (17,000)

By the end of 2009, Fitness Outfitters needs to have a cash balance of $5,000 and is expected to have the following partial balance sheet:
ASSETS Inventory $ 53,000 Store equipment $97,000 Accumulated depreciation, store equipment 15,000 82,000 LIABILITIES AND EQUITY Accounts payable $ 37,000 Common stock 100,000 Retained earnings (17,000)
Assume that all sales will be for cash and that store equipment will be acquired for cash.
Required:
. Prepare as much of the statement of cash flows for 2009 as you can. Use the direct method to determine cash flows from operations.
. In the statement that you prepared for requirement 1, by how much does the prospective cash balance exceed or fall short of the desired cash balance? If a shortfall occurs, where would you suggest that Jane and Harvey seek additional cash?
. Does the preparation of a prospective statement of cash flows seem worthwhile for an ongoing business? Why?
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