Describe the three classifications of cash flows, and provide examples of activities that would appear in each classification. Additionally, with regards to Ethics: Manipulating Data to Reach Target Cash Flow read the following: Augusta Clothing, Inc., sells formal clothing to young professionals at its five retail stores. The companys fiscal year ends on December 31. The companys president and CEO, Teresa Pacheco, just received a draft of the statement of cash flows from the controller, David Rodriquez. Teresa is very interested in the results since a significant part of her annual bonus depends on generating at least $400,000 in cash from operating activities. A summary of the statement is provided in the following:

Lily Beckworth, the chief financial officer (CFO) for Augusta Clothing, Inc., is approached by Teresa:

Teresa: Lily, have you seen the statement of cash flows?

Lily: No, not yet. Last I heard David was just about done with it.

Teresa: He just dropped off a copy for my review.

Lily: Excellent. How does it look?

Teresa: Overall it looks fine, but something must be wrong with the operating activities number. I assumed it would be well above $400,000. Can you take a look at it and make sure we exceed $400,000?

Lily: Ill do what I can.

Teresa: Great. I knew I could depend on you. Shortly after this discussion,

Lily returned with revised numbers:

Lily: Teresa, here is the corrected statement of cash flows (see as follows). I was able to reclassify a portion of cash received from the sale of long-term investments to the operating activities section to get to $403,000.

Teresa: Excellent! Thanks, Lily, I knew you could do it!

Required: What impact did the reclassification of cash flows have on the total net increase in cash? Explain. Are Lilys actions ethical? Explain. If you were the CFO, how would you handle Teresas request? (If necessary, review the presentation of ethics in Chapter 1 What Is Managerial Accounting? for additional information.)