PREPARING A STATEMENT OF CASH FLOWS SDPS, Inc., provides airport transportation services in southern California. An income statement for 2009 and balance sheets for 2009 and 2008 appear below.

SDPS, Inc.

Income Statement For the Year Ended December 31, 2009 Sales $937,000 Less operating expenses:

Wages expense $278,000 Rent expense 229,000 Fuel expense 83,000 Maintenance expense 138,000 Depreciation expense 215,000 943,000 Income (loss) from operations $ (6,000)

Other income (expenses):

Loss on sale of vehicles $ (3,000)

Interest expense (14,000) (17,000)

Net loss $ (23,000)

SDPS, Inc.

Balance Sheets December 31, 2009 and 2008 ASSETS 2009 2008 Current assets:

Cash $ 40,000 $ 82,000 Accounts receivable 126,000 109,000 Inventory, fuel 11,000 25,000 Total current assets $177,000 $216,000 Property, plant, and equipment:

Equipment, vehicles $ 524,000 $ 409,000 Accumulated depreciation (174,000) (136,000)

Net property, plant, and equipment 350,000 273,000 Total assets $527,000 $489,000 LIABILITIES AND EQUITY Current liabilities:

Accounts payable $ 103,000 $ 58,000 Wages payable 22,000 29,000 Maintenance service payable 41,000 34,000 Rent payable 92,000 51,000 Total current liabilities $258,000 $172,000 Long-term liabilities:

Long-term notes payable 100,000 125,000 Total liabilities $358,000 $297,000 Equity:

Common stock $ 150,000 $ 150,000 Retained earnings 19,000 42,000 Total equity 169,000 192,000 Total liabilities and equity $527,000 $489,000 Additional information:

a. Vehicles with a cost of $310,000 and accumulated depreciation of $177,000 were sold for $130,000 cash. New vehicles were purchased for $425,000 cash.

b. A $25,000 principal payment on the long-term note was made during 2009.

c. No dividends were paid during 2009.
Required:
. Prepare a statement of cash flows, using the indirect method to compute net cash flow from operating activities.
. Explain what has been responsible for the decrease in cash.
. Determine whether an examination of the changes in the current liability accounts suggest how SDPS financed its increase in net property, plant, and equipment during a period in which it had a substantial net loss.
Appendix Problem Sets