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Vincent Fairfield, CEO of MetroAir, sat at his desk, examiningthe company's latest financial statements. “This just doesn't makesense to me,” Vincent thought. “We're reporting $1,662,015 in netincome, yet our Cash balance decreased by over $350,000. With theseresults, I would think the Cash balance should go up by at least$1,000,000.”

MetroAir Income Statement For the Year Ended December 31, 2016
Sales	$78,555,000
Cost of goods sold	58,146,480
Gross profit	20,408,520
Selling expense	5,168,505
Administrative expense	3,814,660
Salaries expense	7,408,490
Depreciation expense	1,016,835
Interest expense	625,725
Income before taxes	2,374,305
Tax expense	712,290
Net income	$ 1,662,015

MetroAir Balance Sheets As of December 31
	2016	2015
Cash	$ 266,280	$ 631,710
Accounts receivable, net	9,355,695	8,751,435
Inventories	9,605,580	8,206,635
Other assets	691,380	359,640
Total current assets	19,918,935	17,949,420
Machinery and equipment, net	8,142,870	9,009,705
Total assets	$28,061,805	$26,959,125
Accounts payable	$ 6,624,030	$ 6,675,210
Accrued expenses	563,371	1,023,738
Salaries payable	615,940	595,380
Interest payable	58,143	55,412
Income taxes payable	63,781	59,860
Short-term debt	2,175,000	1,950,000
Total current liabilities	10,100,265	10,359,600
Long-term debt	4,200,000	4,500,000
Total liabilities	14,300,265	14,859,600
Common stock	3,150,000	3,150,000
Retained earnings	10,611,540	8,949,525
Total stockholders' equity	13,761,540	12,099,525
Total liabilities and stockholders' equity	$28,061,805	$26,959,125

Required

(a)  

Prepare MetroAir's statement of cash flows using either theindirect or the direct method, as specified by your professor.During the year, the company purchased equipment, issued short-termdebt, and retired long-term debt.

(b)  

Prepare a memo to Vincent explaining why he should notnecessarily expect an increase in cash when the company reports netincome. Be specific and include any issues that should causeVincent concern.