Stegner Inc. reported net income of $130,000 for the year ended December 31, 2012. The following items were included on Stegner's balance sheets at December 31, 2012 and 2011:
12/31/12 12/31/11
Cash.......................................$105,000........$110,000
Accounts receivable......................223,000...........83,000
Notes receivable............................95,000.........100,000
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 2012.
Required
1. Prepare Stegner's 2012 statement of cash flows.
2. Draft a brief memo to the owner to explain why cash decreased during a profitable year.