Atlantic Service Company was established in Moncton, New Brunswick, five years ago to provide services to the home construction industry. It has been very successful, with assets, sales, and profits increasing each year. How- ever, Atlantic is experiencing serious cash shortages and is in danger of going into bankruptcy, because it cannot pay its suppliers and already has a very substantial overdraft at its bank. The president has asked you to analyze the statement of cash flows for the years 2016 and 2015, which appears below.

Required:
Write a memo that:
a. Explains what appears to be causing the cash shortage
b. Recommends a plan to save the company from bankruptcy.

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ATLANTTC SERVICE COMPANY Statement of Cash Flows As of December 31 2016 2015 Operating activities: Net income S200,000 $185,000 Adjustments to convert earnings to cash flows Depreciation expense Gain on sale of investments 25,000 3.000 20,000 2,000 in non-cash working capital: Increase in accounts receivable Increase in inventory Increase in prepaid expenses Increase in accounts payable (35,000) (30,000) (5,000) 52,000 210,000 (25,000) (20,000) (4,000) 43,000 201,000 Net cash provided by operating activities Financing activities: Repayment of short-term bank loan Renewal of short-term bank loan Dividends paid (100,000) 180,000 (15,000) 65,000 (60.000) 100,000 (10,000) 30,000 Net cash provided by financing activities Investing activities Purchase of equipment Net cash used by investing activities Net decrease in cash during year Cash position (bank overdraft) at beginning of year Cash position (bank overdraft) at end of year (300,000) 300,000) (25,000) (29,000 10,000) (54,000) (29,000) (250,000) (250,000) (19,000)