Shepard Company has not yet prepared a formal statement of cash flows for 2017. Comparative

balance sheets as of December 31, 2017 and 2016, and a statement of income and retained earnings for the year ended December 31, 2017, appear below and on the following page.

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 2017 using the direct method in the Operating Activities section.

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Shepard Company Balance Sheet December 31 (thousands omitted) Assets 2 5 U.S. Treasury bills (six-month) Accounts receivable Accumulated depreciation $1,235 Liabilities and Owners' Equity Total current liabilities Term notes payable-due 2021 Common stock outstanding Total owners' equity Total liabilities and owners' equity Shepard Company Statement of Income and Retained Earnings For the Year Ended December 31, 2017 (thousands omitted) Sales Less expenses and interest: $1,416 Cost of goods sold Salaries and benefits Heat, light, and power Depreciation $990 195 70 40 Property taxes Patent amortization Miscellaneous expense Interest 20 1,364 $ 52 12 S 40 115 S 155 20 $ 135 45 Net income before income taxes Income taxes Net income Retained eamings January 1 Stock dividend distributed Retained eamings-December 31, 2017