Nojiri Pharmaceutical Industries develops, manufactures, and markets pharmaceutical products in Japan. The Japanese economy experienced recessionary conditions in recent years. In response to these conditions, the Japanese government increased the proportion of medical costs that is the patient€™s responsibility and lowered the prices for prescription drugs. Exhibit 3.26 presents the firm€™s balance sheets for Years 1 through 4, and Exhibit 3.27 presents income statements for Years 2 through 4.

REQUIRED
a. Prepare a worksheet for the preparation of a statement of cash flows for Nojiri Pharmaceutical Industries for each of the years ending March 31, Year 2 to Year 4. Follow the format of Exhibits 3.12 and 3.13 in the text. Notes to the financial statements indicate the following:
(1) The changes in Accumulated Other Comprehensive Income relate to revaluations of Investments in Securities to market value. The remaining changes in Investments in Securities result from purchases and sales. Assume that the sales occurred at no gain or loss.
(2) No sales of property, plant, and equipment took place during the three-year period.
(3) The changes in Other Non current Assets are investing activities.
(4) The changes in Employee Retirement Benefits relate to provisions made for retirement benefits net of payments made to retired employees, both of which the statement of cash flows classifies as operating activities.
(5) The changes in Other Non current Liabilities are financing activities.

b. Prepare a comparative statement of cash flows for Year 2, Year 3, and Year 4.
c. Discuss the relations among net income and cash flow from operations and the pattern of cash flows from operating, investing, and financing transactions for Year 2, Year 3, and Year 4.

Exhibit 3-12

Exhibit 3-13

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Exhibit 3.26 Nojiri Phamaceutical Industries Balance Sheets (amounts in millions) (Problem 3.28) March 31: Year 4 Year 3 Year 2 Year 1 ASSETS ¥ 6,233 ¥ 4,569 ¥ 4,513 ¥ 5,008 Cash Accounts and notes receivable-Trade 19,003 17,828 19,703 19,457 7,948 8,706 Inventories 7,693 8,607 Deferred income taxes 1,355 1,192 948 824 Prepayments 432 325 640 634 ¥ 34,716 3,309 ¥ 31,862 2,356 ¥ 34,510 3,204 ¥ 34,530 4,997 Total Current Assets Investments Property, plant, and equipment, at cost 71,792 71,510 (38,912) 71,326 71,018 Less accumulated depreciation (40,689) (36,854) (35,797) Deferred income taxes 236 1,608 1,481 494 Other assets 4,551 3,904 3,312 3,463 ¥ 73,915 ¥ 72,328 ¥ 76,979 ¥ 78,705 Total Assets LIABILITIES AND SHA REHOLDERS' EQUITY Accounts and notes payable-Trade Notes payable to banks Current portion of long-tem debt ¥ 10,804 ¥ 10,087 ¥ 9,629 ¥ 10,851 10,360 10,328 9,779 10,023 100 200 9,779 Other current liabilities 7,200 6,170 7,565 ¥ 27,747 ¥ 26,327 ¥ 30,409 ¥ 28,392 Total Current Liabilities 6,487 Long-term debt 8,140 7,889 8,147 Defered income taxes 3,361 Employee retirement benefits 809 905 1,087 1,166 Other noncurrent liabilities 175 174 200 216 ¥ 40,232 ¥ 35,295 ¥ 10,758 15,012 ¥ 38,183 ¥ 10,758 ¥ 37,921 ¥ 10,758 Total Liabilities ¥ 10,758 15,012 9,179 (342) Common stock Additional paid-in capital Retained eamings Accumulated other comprehensive income Treasury stock Total Shareholders' Equity Total Liabilities and Shareholders' Equity 15,012 15,012 15,014 11,838 13,697 (490) (659) (924) (85) ¥ 37,033 ¥ 72,328 (12) ¥ 38,796 ¥ 76,979 ¥ 33,683 ¥ 73,915 ¥ 40,784 ¥ 78,705 Exhibit 3.27 Nojiri Pharmaceutical Industries Income Statements (amounts in millions) (Problem 3.28) Year Ended March 31: Year 4 Year 3 Year 2 Sales ¥ 41,352 ¥ 41,926 ¥ 44,226 Cost of goods sold Selling and administrative expenses (27,667) (27,850) (15,243) (28,966) (15,283) (13,396) Interest expense (338) (1,823) ¥ (1,872) (364) (368) Income tax expense 443 34 Net Income ¥ (1,088) (357)