Cash Flow exercise (40 marks) You are the controller for Attrex Corp. Your staff has prepared an income statement for the current year and has developed the following additional information by analysing the changes in the company's balance sheet accounts for year end. Revenue: Net sales..... Interest revenue Gain on sales of marketable securities. $3,200,000 40,000 34,000 $3,274,000 Total revenue and gains..... Costs and expenses: Cost of goods sold. $1,620,000 Operating expenses (including depreciation of $150,000) 1,240,000 Interest expense. 42,000 Income tax expense 100,000 Loss on sales of plant assets 12,000 Total costs, expenses, and losses Net income.... Additional Information 3,014,000 $ 260,000 1. Accounts receivable increased by $60,000. 2. Accrued interest receivable decreased by $2,000. 3. Inventory decreased by $60,000, and accounts payable to suppliers of merchandise decreased by $16,000. 4. Short-term prepayments of opex increased by $6,000, and accrued liabilities for opex decreased by $8,000. 5. The liability for accrued interest payable increased by $4,000 during the year. 6. The liability for accrued income taxes payable decreased by $14,000 during the year. 7. The following schedule summarizes the total debit and credit entries during the year in other balance sheet accounts: Marketable Securities..... Notes Receivable (cash loans made to borrowers) Plant Assets (see paragraph 8). Notes Payable (short-term borrowing). Capital Stock. Additional Paid-in Capital-Capital Stock Retained Earnings (see paragraph 9).. Debit Entries Credit Entries $ 60,000 $38,000 44,000 28,000 500,000 36,000 92,000 82,000 20,000 160,000 120,000 260,000 8. The $36,000 in credit entries to the Plant Assets account is net of any debits to Accumulated Depreciation when plant assets were retired. Thus, the $36,000 in credit entries represents the book value of all plant assets sold or retired during the year. 9. The $120,000 debit to Retained Earnings represents dividends declared and paid during the year. The $260,000 credit entry represents the net income shown in the income statement. 10. All investing and financing activities were cash transactions. 11. Cash and cash equivalents amounted to $244,000 at the beginning of the year and to $164,000 at year-end. Instructions a) Prepare a statement of cash flows for the current year. Use the indirect method of reporting cash flows. Place brackets around dollar amounts representing cash out-flows. Prepare the usual 3 sections: CF from ops, CF from Investing & CF from Financing activities. b) Explain the primary reason why: 1. The amount of cash provided by operating activities was substantially greater than the company's net income. 2. There was a net decrease in cash over the year, despite the substantial amount of cash provided by operating activities. c) As Attrex's controller, you think that through more efficient cash management, the company could have held the increase in accounts receivable for the year to $10,000, without affecting net income. Explain how holding down the growth in receivables. affects cash. Compute the effect that limiting the growth in receivables to $10,000 would have had on the company's net increase or decrease in cash (and cash equivalents) for the year