1. How can the statement of cash flows help management arrange for proper financing?
2. A corporation's income statement shows a net income of $10,000 after income taxes for the year. Its statement of cash flows shows that its cash balance increased by $150,000: net cash outflow from operating activities, $100,000; net cash inflow from financing activities, $50,000; and net cash inflow from investing activities, $200,000. The president of the corporation has commented, "Even though the company's profit is small, it is clear, based on our positive cash flow, that we are doing quite well." Do you agree with this comment? Why or why not?
3. A member of a corporation's board of directors commented that because the statement of cash flows and the income statement are so similar, there is no need to prepare the income statement. Respond.
4. Assume that you are an accountant preparing the statement of cash flows for the year. Should the cash proceeds of $100,000 from a short-term note payable discounted in May of this year be included in the statement? The note was repaid in October. Would it be preferable to simply ignore both the loan and the repayment because it might confuse management to show both? Explain.
5. A potential customer has applied for an open-account credit line with a manufacturing firm. Explain how the potential