See, I told you things would work out, said Barry Kresmier, president of Lomax Company. We expanded sales from $1.6 million to $2 million in year 2, nearly doubled our warehouse space, and ended the year with more cash in the bank than we started with. A few more years of expansion like this, and well be the industry leaders.

Yes, Ill admit our statements look pretty good, replied Sheri Colson, the companys vice-president. But were doing business with a lot of companies we dont know much about, and that worries me. Ill admit, though, that were certainly moving a lot of merchandise; our inventory is actually down from last year.

A comparative balance sheet for Lomax Company containing data for the last two years follows:

LOMAX COMPANY
Comparative Balance Sheet
December 31, Year 1 and Year 2
	Year 2			Year 1
Assets
Current assets:
Cash	$	42,000		$	27,000
Marketable securities		19,000			13,000
Accounts receivable		710,000			530,000
Inventory		848,000			860,000
Prepaid expenses		10,000			5,000
Total current assets		1,629,000			1,435,000
Long-term investments		60,000			110,000
Loans to subsidiaries		130,000			80,000
Plant and equipment		3,170,000			2,600,000
Less: Accumulated depreciation		810,000			755,000
Net plant and equipment		2,360,000			1,845,000
Goodwill		84,000			90,000
Total assets	$	4,263,000		$	3,560,000
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable	$	970,000		$	670,000
Accrued liabilities		65,000			82,000
Total current liabilities		1,035,000			752,000
Long-term notes		820,000			600,000
Deferred income taxes		95,000			80,000
Total liabilities		1,950,000			1,432,000
Shareholders equity:
Common shares		1,740,000			1,650,000
Retained earnings		573,000			478,000
Total shareholders equity		2,313,000			2,128,000
Total liabilities and shareholders' equity	$	4,263,000		$	3,560,000

The following additional information is available about the companys activities during year 2:

1. Cash dividends declared and paid to the common shareholders totalled $75,000.
2. Long-term notes with a value of $380,000 were repaid during the year.
3. Equipment was sold during the year for $70,000. The equipment had cost $130,000 and had $40,000 in accumulated depreciation on the date of sale.
4. Long-term investments were sold during the year for $110,000. These investments had cost $50,000 when purchased several years ago.
5. The companys income statement for year 2 follows:

Sales			$	2,000,000
Less: Cost of goods sold				1,300,000
Gross margin				700,000
Less: Operating expenses				490,000
Net operating income				210,000
Nonoperating items:
Gain on sale of investments	$	60,000
Loss on sale of equipment		20,000		40,000
Income before taxes				250,000
Less: Income taxes				80,000
Net income			$	170,000

Required: Prepare a cash flow statement for year 2.