“See, I told you things would work out,” said Barry Kresmier, president of Lomax Company. “We expanded sales from $1.6 million to $2.0 million in 2009, nearly doubled our warehouse space, and ended the year with more cash in the bank than we started with. A few more years of expansion like this and we’ll be the industry leaders.” “Yes, I’ll admit our statements look pretty good,” replied Sheri Colson, the company’s vice president. “But we’re doing business with a lot of companies we don’t know much about and that worries me. I’ll admit, though, that we’re certainly moving a lot of merchandise; our inventory is actually down from last year.” A comparative balance sheet for Lomax Company containing data for the last two years follows:

The following additional information is available about the company’s activities during 2009:

1. Cash dividends declared and paid to the common stockholders totaled $75,000.

2. Long-term notes with a value of $380,000 were repaid during the year.

3. Equipment was sold during the year for $70,000. The equipment had cost $130,000 and had $40,000 in accumulated depreciation on the date of sale.

4. Long-term investments were sold during the year for $1 10,000. These investments had cost $50,000 when purchased several years ago.

5. The company’s income statement for 2009 follows:

Required:

1. Prepare a worksheet like Exhibit 15—9 for Lomax Company.

2. Using the indirect method, prepare a statement of cash flows for the year 2009.

3. What problems relating to the company’s activities are revealed by the statement of cash flows that you have prepared?

Lomax Company Comparative Balance Sheet December 31, 2009 and 2008 2009 2008 Assets Current assets: $ 42,000 Cash. . Marketable securities. $ 27,000 19,000 710,000 13,000 Accounts receivable. 530,000 860,000 Inventory Prepaid expenses 848,000 10,000 5,000 Total current assets . 1,629,000 1,435,000 Long-term investments 60,000 110,000 Loans to subsidiaries.. 130,000 80,000 Plant and equipment.. Less accumulated depreciation. 3,170,000 810,000 2,600,000 755,000 Net plant and equipment.. 1,845,000 2,360,000 Patents .. 84,000 90,000 Total assets $4,263,000 $3,560,000 Liabilities and Stockholders' Equity Current liabilities: Accounts payable.. Accrued liabilities .. $ 670,000 82,000 $ 970,000 65,000 1,035,000 820,000 95,000 Total current liabilities 752,000 Long-term notes Deferred income taxes. 600,000 80,000 Total liabilities.. 1,950,000 1,432,000 Stockholders' equity: Common stock. 1,740,000 573,000 1,650,000 478,000 Retained earnings Total stockholders' equity . 2,313,000 2,128,000 Total liabilities and stockholders' equity.. $4,263,000 $3,560,000