Carpetland City reported net income of $78,500 for the year ended December 31, 2016. The following items were included on Carpetland's balance sheet at December 31, 2016 and 2015:

Carpctland uses the indirect method to prepare its statement of cash flows. Carpctland does not have any other current assets or current liabilities and did not enter into any investing or financing activities during 2016.
Required
1. Prepare Carpetland's 2016 statement of cash flows.
2. Draft a brief memo to the president to explain why cash decreased during a profitable year.

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12/31/16 Cash Trade accounts payable Inventories 14,400 23,900 105,500 12/31/15 $26,300 93,700 84,900