The 2018 income statement and the 2018 comparative balance sheet of Ghent River Camp, Inc., have just been distributed at a meeting of the camp’s board of directors. The directors raise a fundamental question: Why is the cash balance so low? This question is especially troublesome since 2018 showed record profits. As the controller of the company, you must answer the question.

Requirements

1. Prepare a statement of cash flows for 2018 in the format that best shows the relationship between net income and operating cash flow. The company sold no plant assets or longterm investments and issued no notes payable during 2018. There were no noncash investing and financing transactions during the year. Show all amounts in thousands.

2. Answer the board members’ question: Why is the cash balance so low? Point out the two largest cash payments during 2018. (Challenge)

3. Considering net income and the company’s cash flows during 2018, was it a good year or a bad year? Give your reasons.

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A1 Ghent River Camp, Inc. Income Statement Year Ended December 31, 2018 2 (In thousands) 3 Revenues: Sales revenue 5 Expenses: 6. $ 436 Cost of goods sold Salary expense 8 221 48 46 13 Depreciation expense Interest expense Amortization expense Total expenses 10 11 12 Net income 13 11 339 $ 97 A1 Ghent River Camp, Inc. Comparative Balance Sheets December 31, 2018 and 2017 2 (In thousands) 3 Assets: Cash 2018 2017 $ 17 72 194 369 (244) 31 177 $ 616 $ 63 4 Accounts receivable, net Inventories Property, plant, and equipment 61 181 259 8 Accumulated depreciation (198) Long-term investments 10 Patents 188 11 Totals $ 554 12 Liabilities and stockholders' equity: Accounts payable $ 63 12 179 149 13 $ 56 14 Accrued liabilities Notes payable, long-term 16 17 264 61 15 Common stock, no par Retained earnings Totals 17 213 $ 616 156 $ 554 18 19