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STATEMENT OF CASH FLOWS:  REPORTING THE EFFECTS OF OPERATING, INVESTING, AND FINANCING ACTIVITIES ON CASH FLOWS   T4-X

4.24 continued.

c.Year 6

Operating

IncomeBalanceCashCash  Flow

Statement+Sheet=CashDisburse-=from

AccountChangesReceiptsmentsOperations

Sales$5,284$5,284

Cost of Goods Sold(3,285)$(96)$(3,267)

114

Selling and Adminis-

trative Expenses(1,250)(1)(946)

215

90

Income Tax Expense(296)26(270)

Net Income $453+$348=$5,284$(4,483)=$801

Year 7

Operating

IncomeBalanceCashCash  Flow

Statement+Sheet=CashDisburse-=from

AccountChangesReceiptsmentsOperations

Sales$6,508$6,508

Cost of Goods Sold(4,022)$(154)$(4,042)

134

Selling and Adminis-

trative Expenses(1,632)(56)(1,295)

270

123

Income Tax Expense(320)(7)(327)

Net Income $534+$310=$6,508$(5,664)=$844

d.Cash flow from operations exceeded net income each year primarily because of the addback for depreciation and the delay in paying Other Current Liabilities.  Cash flow from operations was more than sufficient to finance acquisition of property, plant and equipment.  The Gap used its excess cash flow during each year to repurchase shares of its common stock.  The firm increased its long-term borrowing in Year 7, thereby increasing the balance

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