100 Required Abbreviated income statements for The GAP appear below: a. Why might Tang's loan officer be concerned about the com- Year 7 Year 8 pany's ability to repay the loan? b. What steps can Tang management take to reduce the bank's Sales $5,284 $6,508 risk on the loan? Cost of goods sold -3,285 -4,022 Selling and administrative -1,250 -1,632 expenses 5.8 Preparing and Interpreting the Statement of Cash Flows Income tax expense -296 -320 The annual reports from Year 7 and Year 8 of The GAP, a global Net income $453 $534 clothing retailer, indicate the following changes in its balance sheet accounts (amounts in millions): Additional data: Year 7 Year 8 The cash balance was $486 at the end of Year 7 and $914 at the end of Year 8. Cash $2 decrease $428 increase The firm did not sell property, plant and equipment in either Marketable securities (current 46 decrease 46 decrease asset) year. Merchandise inventories 96 increase 154 increase Changes in other noncurrent assets resulted from investing Prepaid expenses 1 increase 56 increase activities. Property, plant and equipment 372 increase 466 increase Required (at cost) Accumulated depreciation a. Prepare statements of cash flows for Year 7 and Year 8. 215 increase 270 increase Other noncurrent assets 51 increase 15 increase b. Comment on the relationship between net income and CFFO, and on the relationship between operating, investing, and Accounts payable 114 increase 134 increase financing cash flows. Compare Year 7 with Year 8. Notes payable to banks 18 increase 45 increase (current liability) Income taxes payable 26 increase 7 decrease Other current liabilities 90 increase 123 increase Bonds payable 577 increase Common stock 360 decrease 524 decrease Retained earnings 369 increase 455 increase +