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Prepare and Interpret a Statement of Cash Flows - A comparative balance sheet for Phillips Company containing data for the last two years is as

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 company declared and paid a cash dividend this year.

Bonds with a principal balance of $407,000 were repaid during this year.

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.

Long-term investments were sold during the year for $164,000. These investments had cost $74,300 when purchased several years ago.

The subsidiaries did not repay any outstanding loans during the year.

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?

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