Kayla Moss has just received a small inheritance from her grandparents' estate. She would like to invest the money and is currently reviewing several opportunities. A friend has given her the financial statements of Robertson Furniture Ltd., a company she found on the Internet. Kayla has reviewed the financial statements and is ready to invest in Robertson Furniture.
Before she invests, Kayla comes to you for some financial advice, because she knows you are taking an accounting course and may be able to give her some insights into the financial statements. She is convinced that this company will be a profitable investment because the statement of financial position indicates that the company's cash balances have been increasing very rapidly, from only $8,000 two years ago to $354,000 now.
Kayla has copied Robertson's statement of cash flows for you, so that you can see how much cash the company has been able to generate each year.
ROBERTSON FURNITURE LTD.
Statement of Cash Flows
As of December 31

Required:
a. Comment on Robertson Furniture's statement of cash flows and address Kayla's opinion that, in light of the amount of cash it has generated, the company must be a good investment.
b. Based on the results of your analysis of Robertson's statement of cash flows, outline several points that Kayla should investigate about this company before investing her inheritance in it.

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2011 2010 Operating activities: Net earnings (loss) (4,000) 12,000 Add back items not representing cash flows: Depreciation expense Loss on disposal of property, plant, and equipment Loss on sale of investments 20,000 12,000 4,000 40,000 10,000 3,000 Adjustment for working capital items Increase in accounts receivable Increase in inventories Decrease in prepaid insurarn (40,000) (36,000) (54,000) (42,000) 2,000 28,000 9.000) 17.000 8,000 45,000 ce Increase in accounts payable Cash flow from operating activities Financing activities: Issuance of bonds payable Issuance of shares Payment of dividends 00,000 50,000 20,000 30,000 2.000 (20,000) 30,000 Cash flow from financing activities Investing activities 148,000 Cash flow from investing activities Overall increase in cash during year Cash- beginning of year Cash-end of year Sale of property, plant, and equipment Sale of investment 70,000 50,000 120,000 257.000 97,000 22,000 20,000 42.000 89,000 8,000 4.000 97,000