The Fried Company has assembled the accompanying balance sheets and income statement and reconciliation of retained earnings for 2018 Fried Co Balance Sheets as of December 31 (in millions) 2018 2017 2018 2017 Assets Cash 10 25 Accounts receivable 40 28 Inventory 70 50 Prepaid general expenses 4 3 Plant assets,net 202 150 326 256 Liabilities and Shareholders Equity Accounts payable for merchandise 74 60 Accrued tax payable 3 2 Long term debt 50 Capital stock 100 100 Retained earnings 99 94 326 256 Sales 250 Less cost of goods sold Inventory,December 31,2017 50 Purchases 160 Cost of goods available for sale 210 Inventory,December 31,2018 70 140 Gross profit 110 Less other expenses General expense 51 Depreciation 40 Taxes 10 101 Net income 9 Dividends 4 Net income of the period retained 5 Retained earnings,December 31,2017 94 Retained earnings,December 31,2018 99 On December 30, 2018, Fried paid $98 million in cash to acquire a new plant to expand operations This was partly financed by an issue of long term debt for $50 million Some plant assets were sold for their book value of $6 million during 2018 Because net income was $9 million, the highest in the companys history, Naftali Fried, the chief executive officer, was distressed by the companys extremely low cash balance Required a Prepare a statement of cash flows using the direct method for reporting cash flows from operating activities Do not forget to prepare a schedule that reconciles net income to net cash provided by operating activities b What is revealed by the statement of cash flows Does it help you reduce Mr Frieds distress Why Briefly explain to Mr Fried why cash has decreased even though net income was $9 million

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The Fried Company has assembled the accompanying balance sheets and income statement and reconciliation of retained earnings for 2018. Fried Co. Balance Sheets as of

The Fried Company has assembled the accompanying balance sheets and income statement and reconciliation of retained earnings for 2018. Fried Co. Balance Sheets as of December 31 (in millions) 2018 2017

	2018	2017
Assets:
Cash	10	25
Accounts-receivable	40	28
Inventory	70	50
Prepaid-general-expenses	4	3
Plant-assets,net	202	150
	326	256
Liabilities-and-Shareholders-Equity:
Accounts-payable-for-merchandise	74	60
Accrued-tax-payable	3	2
Long-term-debt	50	--
Capital-stock	100	100
Retained-earnings	99	94
	326	256


Sales		250
Less-cost-of-goods-sold:
Inventory,December-31,2017	50
Purchases	160
Cost-of-goods-available-for-sale	210
Inventory,December-31,2018	70	140
Gross-profit		110
Less-other-expenses:
General-expense	51
Depreciation	40
Taxes	10	101
Net-income		9
Dividends		4
Net-income-of-the-period-retained		5
Retained-earnings,December-31,2017		94
Retained-earnings,December-31,2018		99

On December 30, 2018, Fried paid $98 million in cash to acquire a new plant to expand operations. This was partly financed by an issue of long-term debt for $50 million. Some plant assets were sold for their book value of $6 million during 2018. Because net income was $9 million, the highest in the companys history, Naftali Fried, the chief executive officer, was distressed by the companys extremely low cash balance.

Required: a. Prepare a statement of cash flows using the direct method for reporting cash flows from operating activities. Do not forget to prepare a schedule that reconciles net income to net cash provided by operating activities. b. What is revealed by the statement of cash flows? Does it help you reduce Mr. Frieds distress? Why? Briefly explain to Mr. Fried why cash has decreased even though net income was $9 million.