Statement of Cash Flows—Direct Method Lang Company has not yet prepared a formal statement of cash flows for 2008. Following are comparative balance sheets as of December 31, 2008 and 2007, and a statement of income and retained earnings for the year ended December 31, 2008:

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 2008 using the direct method in the Operating Activities section.

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Lang Company Balance Sheet December 31 (thousands omitted) Assets 2008 2007 Current assets: Cash $ 60 $ 100 U.S. Treasury bills (six-month) ---0-- 50 Inventory Accounts receivable Total current assets 610 500 720 600 $1,390 $1,250 Long-term assets: Land Buildings and equipment Accumulated depreciation Patents (less amortization) Total long-term assets Total assets Liabilities and Owners' Equity $ 80 $ 70 710 600 (180) (120) 105 130 $ 715 $ 680 $2,105 $1,930 2008 2007 Current liabilities: Accounts payable $ 360 $ 300 Taxes payable 25 20 Notes payable 400 400 Total current liabilities $ 785 $ 720 Term notes payable-due 2012 200 200 Total liabilities $ 985 $ 920 Owners' equity: Common stock outstanding $ 830 $ 700 Retained earnings 290 310 Total owners' equity $1,120 $1,010 Total liabilities and owners' equity $2,105 $1,930