Chapter 3, Problem 27PC

Preparing a Statement of Cash Flows from Balance Sheets and Income Statements. BTB Electronics Inc. manufactures parts, components, and processing equipment for electronics and semiconductor applications in the communications, computer, automotive, and appliance industries. Its sales tend to vary with changes in the business cycle because the sales of most of its customers are cyclical. Exhibit 3.32 presents balance sheets for BTB as of December 31, Year 7 through Year 9, and Exhibit 3.33 presents income statements for Year 8 and Year 9.

REQUIRED

1. a. Prepare a worksheet for the preparation of a statement of cash flows for BTB Electronics Inc for Years 8 and 9. Follow the format of Exhibit 3.14 in the text. Notes to the firm’s financial statements reveal the following (amounts in thousands):
   1. (1) Depreciation expense was $641 in Year 8 and $625 in Year 9. No fixed assets were sold during these years.
   2. (2) Other Assets represents patents. Patent amortization was $25 in Year 8 and $40 in Year 9. BTB sold a patent during Year 9 at no gain or loss.
   3. (3) Changes in Deferred Income Taxes are operating activities.
2. b. Discuss the relations among net income and cash flow from operations and the pattern of cash flows from operating, investing, and financing activities.