Presented Below Are the Comparative Balance Sheets and Income Statement $\quad$

Essay

Presented below are the comparative balance sheets and income statement for Pierce Manufacturing Corporation (in $ millions) for the year ended December 31, Year 2:

$\quad$$\quad$$\quad$$\quad$$\quad$$\text {Pierce Manufacturing Corporation}$
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text {Balance Sheet}$
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text {At December 31, Year 2}$
$\begin{array}{lrr}&\underline{\text { Year } 2}& \underline{\text { Year } 1}\\\text { Assets }\\\text { Cash } & \$ 330 & \$ 220 \\\text { Accounts Receivable } & 825 & 913 \\\text { Inventory } & 704 & 660 \\\text { Prepaid Insurance } & 55 & 22 \\\text { Property Plant and Equipment } & 2,310 & 1,980 \\\text { Less: Accumulated Depreciation } & \underline{(924)} & \underline{(660)} \\\text { Totals } & \underline{\$ 3,300} & \underline{\$ 3,135}\end{array}$



$\begin{array}{lrr}\text { Liabilities and Shareholders' Equity }\\\text { Accounts Payable } & \$ 330 & \$ 396 \\\text { Other Current Liabilities } & 330 & 440 \\\text { Income Taxes Payable } & 220 & 165 \\\text { Notes Payable-long term } & 880 & 660 \\\text { Common Stock } & 990 & 880 \\\text { Retained earnings } & \underline{550} & \underline{594} \\\text { Totals } &\underline{ \$ 3,300} & \underline{\$ 3,135}\end{array}$
$\begin{array}{c}\text {Pierce Manufacturing Corporation }\\\text {Income Statement }\\\text {For Year Ending December 31, Year 2}\\\\\begin{array}{lr}\text { Sales } && \$ 7,700 \\\text { Cost of Goods Sold } && \underline{3,696} \\\text { Gross Profit } && \$ 4,004\\\text { Expenses } & \\\text { Administrative Expenses } & \$ 1,980 \\\text { Insurance Expense } & 110 \\\text { Depreciation } & \underline{264}&\underline{2,354} \\\text { Income before income taxes } && \$ 1,650 \\\text { Income tax expense } && \underline{660} \\\text { Net income } && \underline{\underline{\$ 990}}\end{array}\end{array}$

Prepare the operating section of the statement of cash flows using the direct method and a reconciliation using the indirect method.