Effects of Changes in Receivable Balances on Statement of Cash Flows Stegner Inc. reported net income of $130,000 for the year ended December 31, 2010. The following items were included on Stegner€™s balance sheets at December 31, 2010 and 2009:

Stegner uses the indirect method to prepare its statement of cash flows. Stegner does not have any other current assets or current liabilities and did not enter into any investing or financing activities during 2010.

Required
1. Prepare Stegner€™s 2010 statement of cash flows.
2. Draft a brief memo to the owner to explain why cash decreased during a profitable year.

12/31/10 12/31/09 Cash Accounts receivable Notes receivable $105,000 223,000 95,000 $110,000 83,000 100,000