The income statement for Astro Inc. for 2010 is as follows:
For the Year Ended
December 31, 2010
Sales revenue ........... $ 500,000
Cost of goods sold ......... 400,000
Gross profit ........... $ 100,000
Operating expenses ........ 180,000
Loss before interest and taxes .... $ (80,000)
Interest expense .......... 20,000
Net loss ............ $(100,000)
Presented here are comparative balance sheets:

Other information is as follows:
a. Dividends of $35,000 were declared and paid during the year.
b. Operating expenses include $70,000 of depreciation.
c. Land and plant and equipment were acquired for cash, and additional stock was issued for cash. Cash also was received from additional bank loans. The president has asked you some questions about the year€™s results. He is disturbed with the $100,000 net loss for the year. He notes, however, that the cash position at the end of the year is improved. He is confused about what appear to be conflicting signals: €œHow could we have possibly added to our bank accounts during such a terrible year of operations?€
Required
1. Prepare a statement of cash flows for 2010 using the direct method in the Operating Activities section.
2. On the basis of your statement in (1), draft a brief memo to the president to explain why cash increased during such an unprofitable year. Include in your memo your recommendations for improving the company€™s bottomline.

December 31 Total current assets 5 Accumulated depreciation Total long-term assets Other accrued liabilities ble Total current liabilities Long-term bank loan payable 2 Total stockholders' equity S 760,000 Total fiabilities and stockholders $1,275,000