A comparative balance sheet for Lomax Company containing data for the last two years is as follows:

The following additional information is available about the company€™s activities during this year:
a. The company declared and paid a cash dividend this year.
b. Bonds with a principal balance of $ 350,000 were repaid during this year.
c. Equipment was sold during this year for $ 70,000. The equipment had cost $ 130,000 and had $ 40,000 in accumulated depreciation on the date of sale.
d. Long-term investments were sold during the year for $ 110,000. These investments had cost $ 50,000 when purchased several years ago.
e. The subsidiaries did not repay any outstanding loans during the year.
f. Lomax did not repurchase any of its own stock during the year. The company reported net income this year as follows:

Required:
1. Using the indirect method, prepare a statement of cash flows for this year.
2. What problems relating to the company€™s activities are revealed by the statement of cash flows that you haveprepared?

Lomax Company Comparative Balance Sheet This Year Last Year Assets Current assets: Cash and cash equivalents 61,000 710,000 848,000 10,000 1,629,000 3,170,000 810,000 2,360,000 60,000 214,000 $4,263,000 $40,000 530.000 60.000 5,000 1.435.000 2,600,000 755,000 1,845,000 110,000 170.000 $3,560,000 Accounts receivable . . . Inventory Prepaid expenses.... Total current assets Property, plant, and equipment Less accurnulated depreciation Net property, plant, and equipment Long-term investments Loans to subsidiaries Total assets .. Liabilities and Stockholders' Equity Current liabilities: Income taxes payable Total current liabilities. Bonds payable .. Total liabilities. Stockholders' equity: $970,000 65,000 95,000 1,130,000 820,000 1,950,000 $670,000 82,000 80,000 832,000 600,000 1,432,000 Common stock .^... Retained earnings.. 1,740,000 573,000 2,313,000 $4.263,000 1,650,000 478,000 2,128,000 $3,560,000 Total liabilities and stockholders' equity. $2,000,000 1,300,000 700,000 490,000 210,000 Selling and administrative expenses... Net operating income Nonoperating items: Gain on sale of investments $60,000 40,000 Income before taxes Income taxes Net income... 250,000 80,000 170,000