The table below shows the account balances of Novations, Inc., at the beginning and end of the company's accounting period.

The following additional information is available:
(a) All purchases and sales were on account.
(b) Equipment costing $10,000 was sold for $3,000; a loss of $1,000 was recognized on the sale.
(c) Among other items, the operating expenses included depreciation expense of $7,000; interest expense of $2,800; and insurance expense of $2,400.
(d) Equipment was purchased during the year by issuing common stock and by paying the balance ($12,000) in cash.
(e) Treasury stock was sold for $4,000 less than it cost; the decrease in owners' equity was recorded by reducing Retained Earnings. No dividends were paid during the year.

Instructions:
1. Prepare a statement of cash flows for the year ended December 31, 2011, using the direct method of reporting cash flows from operating activities.
2. Comment on the lack of dividend payment. Does a "no-dividend" policy seem appropriate under the current circumstances for Novations,Inc.?

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Debits Dec. 31, 2011 Jan. 1, 2011 $ 58,000 26,600 25,400 4,000 16,800 66,000 20,000 Cash and Cash Equivalents Accounts Receivable $176.400 32.000 21,000 Insurance Long-Term Investments (at cost). Equipment Treasury Stock (at cost) Cost of Goods Sold Operating Expenses Income Tax Expense Loss on Sale of Equipment 80,000 10,000 368,000 185,000 37,600 ,000 Total debits $922,600 $216,800 Credits Dec. 31, 2011 Jan. 1, 2011 $19,000 7,000 1,000 12,000 16,000 10,000 32.000 19.600 704,000 2,000 $18,000 1.200 Accounts Payable Interest Payable Income Taxes Payable Notes Payable Long-Term Common Stock Paid-In Capital in Excess of Par Retained Earnings 8,000 24.000 100,000 30,000 23,600 Gain on Sale of Long-Term Investments Total credits $216,800 Preclosing balance.