Prepare and Interpret a Statement of Cash Flows - A comparative balance sheet for Phillips Company containing data for the last two years is as follows:

Phillips Company Comparative Balance Sheet
	This Year	Last Year
Assets
Current assets:
Cash and cash equivalents	$ 98,000	$ 71,600
Accounts receivable	644,000	677,500
Inventory	640,400	447,000
Prepaid expenses	31,600	18,500
Total current assets	1,414,000	1,214,600
Property, plant, and equipment	2,505,000	1,908,000
Less accumulated depreciation	647,400	584,300
Net property, plant, and equipment	1,857,600	1,323,700
Long-term investments	136,700	211,000
Loans to subsidiaries	147,000	83,500
Total assets	$ 3,555,300	$ 2,832,800
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$ 913,200	$ 597,000
Accrued liabilities	41,200	66,300
Income taxes payable	168,100	139,600
Total current liabilities	1,122,500	802,900
Bonds payable	755,000	481,000
Total liabilities	1,877,500	1,283,900
Stockholders equity:
Common stock	1,144,000	1,027,000
Retained earnings	533,800	521,900
Total stockholders equity	1,677,800	1,548,900
Total liabilities and stockholders' equity	$ 3,555,300	$ 2,832,800

The following additional information is available about the companys activities during this year:

1. The company declared and paid a cash dividend this year.

2. Bonds with a principal balance of $407,000 were repaid during this year.

3. Equipment was sold during this year for $83,500. The equipment had cost $184,000 and had $72,400 in accumulated depreciation on the date of sale.

4. Long-term investments were sold during the year for $164,000. These investments had cost $74,300 when purchased several years ago.

5. The subsidiaries did not repay any outstanding loans during the year.

6. Lomax did not repurchase any of its own stock during the year.

The company reported net income this year as follows:

Sales		$ 3,540,000
Cost of goods sold		2,194,800
Gross margin		1,345,200
Selling and administrative expenses		1,073,100
Net operating income		272,100
Nonoperating items:
Gain on sale of investments	$ 89,700
Loss on sale of equipment	(28,100)	61,600
Income before taxes		333,700
Income taxes		107,000
Net income		$ 226,700

Required:

2. What problems relating to the companys activities are revealed by the statement of cash flows that you have prepared?