Answer questions as directly as possible.

1.) Define internal and external sources of liquidity. What is a material deficiency in liquidity? If a firm has a material deficiency in liquidity what should be reported in the management discussion and analysis?

2.) Indicate whether each of the following items would result in net cash flow from operating activities being higher (H) or lower (L) than net income.

a. Increase in inventory

b. Increase in accounts payable

c. Amortization expense

d. Decrease in accrued liabilities

e. Loss on sale of assets

f. Decrease in accounts receivable

g. Decrease in deferred tax assets

h. Increase in deferred revenue

i. Decrease in income taxes payable

j. Decrease in prepaid expenses

3.) Prepare an income statement using the following information:

Gross profit margin 40%

Gross profit $7,550

Tax rate 35%

Operating profit $400