Fuso Pharmaceutical Industries develops, manufactures, and markets pharmaceutical products in Japan. Its main product is a solution used by individuals with artificial kidneys. Most individuals in Japan are covered by a national health insurance system. The Japanese government sets the policies for the proportion of health care costs covered by the government versus the proportion that is the responsibility of the individual. The government also establishes the prices for prescription drugs. 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 3.30 presents the firm’s balance sheets on March 31 of Year 1 to Year 4, and Exhibit 3.31 presents the firm’s income statements for the years ending March 31, Year 2 to Year 4.

Required

a. Prepare a worksheet for the preparation of a statement of cash flows for Fuso Pharmaceutical Industries for each of the years ending March 31, Year 2 to Year 4. Follow the format of Exhibit 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 Noncurrent 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 Noncurrent Liabilities are financing activities.

b. Prepare a comparative statement of cash flows for Year 2, Year 3, and Year 4.

c. Discuss the relation between 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.