Prepare and Interpret a Statement of Cash Flows - A comparative balance sheet for Phillips Company containing data for the last two years is as follows: Phillips Company Comparative Balance Sheet This Year Last Year Assets Current assets: Cash and cash equivalents $ 98,000 $ 71,600 Accounts receivable 644,000 677,500 Inventory 640,400 447,000 Prepaid expenses 31,600 18,500 Total current assets 1,414,000 1,214,600 Property, plant, and equipment 2,505,000 1,908,000 Less accumulated depreciation 647,400 584,300 Net property, plant, and equipment 1,857,600 1,323,700 Long-term investments 136,700 211,000 Loans to subsidiaries 147,000 83,500 Total assets $ 3,555,300 $ 2,832,800 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 913,200 $ 597,000 Accrued liabilities 41,200 66,300 Income taxes payable 168,100 139,600 Total current liabilities 1,122,500 802,900 Bonds payable 755,000 481,000 Total liabilities 1,877,500 1,283,900 Stockholders equity: Common stock 1,144,000 1,027,000 Retained earnings 533,800 521,900 Total stockholders equity 1,677,800 1,548,900 Total liabilities and stockholders' equity $ 3,555,300 $ 2,832,800 The following additional information is available about the companys activities during this year: a. The company declared and paid a cash dividend this year. b. Bonds with a principal balance of $407,000 were repaid during this year. c. Equipment was sold during this year for $83,500. The equipment had cost $184,000 and had $72,400 in accumulated depreciation on the date of sale. d. Long-term investments were sold during the year for $164,000. These investments had cost $74,300 when purchased several years ago. e. The subsidiaries did not repay any outstanding loans during the year. f. Lomax did not repurchase any of its own stock during the year. The company reported net income this year as follows: Sales $ 3,540,000 Cost of goods sold 2,194,800 Gross margin 1,345,200 Selling and administrative expenses 1,073,100 Net operating income 272,100 Nonoperating items: Gain on sale of investments $ 89,700 Loss on sale of equipment (28,100) 61,600 Income before taxes 333,700 Income taxes 107,000 Net income $ 226,700 Required: 1. Using the indirect method, prepare a statement of cash flows for this year. (List any deduction in cash outflows as negative amounts.) 2. What problems relating to the companys activities are revealed by the statement of cash flows that you have prepared?