Lang Company has not yet prepared a formal statement of cash flows for 2010. Following are comparative balance sheets as of December 31, 2010 and 2009, and a statement of income and retained earnings for the year ended December 31, 2010:

Required

1. For purposes of a statement of cash flows, are the U.S. Treasury bills cash equivalents? If not, how should they be classified? Explain your answers.

2. Prepare a statement of cash flows for 2010 using the direct method in the Operating Activities section.

(CMAadapted)

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Lang Company Balance Sheet December 31 (thousands omitted) Assets Current assets: $ 60 S 100 U.S. Treasury bills (six-month) Accounts receivable 610 Total current assets Long-term assets: $ 80 710 (180) 105 S 70 Buildings and equipment Accumulated depreciation Patents (less amortization Total long-term assets 130 Total assets $1,930 Liabilities and Owners' Equity Current liabilities: Accounts payable Taxes payable Notes payable S 360 $ 300 720 Total current liabilities Term notes payable-due 2014 Total liabilities Owners' equity Common stock outstanding Retained earnings $ 830 $ 700 Total owners' equity Total liabilities and owners' equity Lang Company Statement of Income and Retained Eamings For the Year Ended December 31, 2010 (thousands omitted) $2,408 Less expenses and interest: Cost of goods sold Salaries and benefits Heat, light, and power Depreciation Property taxes Patent amortization Miscellaneous expense Interest $1,100 18 10 Net income before income taxes Income taxes Net income Retained earningsJanuary 1, 2010 2,193 S 215 105 $ 110 310 $ 420 130 Stock dividend distributed Retained earnings December 31, 2010