You are a loan officer for First Benevolent Bank. You have an uneasy feeling as you examine a loan application from Daring Corporation. The application included the following financial statements.

DARING CORPORATION Income Statement For the Year Ended December 31, 2018
Sales revenue	$100,000
Cost of goods sold	(50,000)
Depreciation expense	(5,000)
Remaining expenses	(25,000)
Net income	$ 20,000
DARING CORPORATION Balance Sheet December 31, 2018
Cash	$ 5,000
Accounts receivable	25,000
Inventory	20,000
Operational assets	55,000
Accumulated depreciation	(5,000)
Total	$100,000
Accounts payable	$ 10,000
Interest payable	5,000
Note payable	45,000
Common stock	20,000
Retained earnings	20,000
Total	$100,000

It is not Darings profitability that worries you. The income statement submitted with the application shows net income of $20,000 in Darings first year of operations. By referring to the balance sheet, you see that this net income represents a 20% rate of return on assets of $100,000. Your concern stems from the recollection that the note payable reported on Darings balance sheet is a two-year loan you approved earlier in the year.

You also recall another promising new company that, just last year, defaulted on another of your banks loans when it failed due to its inability to generate sufficient cash flows to meet its obligations. Before requesting additional information from Daring, you decide to test your memory of the intermediate accounting class you took in night school by attempting to prepare a statement of cash flows from the information available in the loan application.