Joyner Companys income statement for Year 2 follows:

Sales	$900,000
Cost of goods sold	500,000
Gross margin	400,000
Selling and administrative expenses	328,000
Net operating income	72,000
Nonoperating items:
Gain on sale of equipment	8,000
Income before taxes	80,000
Income taxes	24,000
Net income	$ 56,000

Its balance sheet amounts at the end of Years 1 and 2 are as follows:

	Year 2	Year 1
Assets
Cash and cash equivalents	$ 4,000	$ 21,000
Accounts receivable	250,000	170,000
Inventory	310,000	260,000
Prepaid expenses	7,000	14,000
Total current assets	571,000	465,000
Property, plant, and equipment	510,000	400,000
Less accumulated depreciation	132,000	120,000
Net property, plant, and equipment	378,000	280,000
Loan to Hymans Company	40,000	0
Total assets	$989,000	$745,000
Liabilities and Stockholders Equity
Accounts payable	$310,000	$250,000
Accrued liabilities	20,000	30,000
Income taxes payable	45,000	42,000
Total current liabilities	375,000	322,000
Bonds payable	190,000	70,000
Total liabilities	565,000	392,000
Common stock	300,000	270,000
Retained earnings	124,000	83,000
Total stockholders equity	424,000	353,000
Total liabilities and stockholders equity	$989,000	$745,000

Equipment that had cost $40,000 and on which there was accumulated depreciation of $30,000 was sold during Year 2 for $18,000. The company declared and paid a cash dividend during Year 2. It did not retire any bonds or repurchase any of its own stock.

Required: SHOW YOUR WORK

1. Using the indirect method, Prepare a statement of cash flows for Year 2 (8 points)
2. Briefly explain why cash declined so sharply during the year (1 points)