It is important that an analyst understand the activities that comprise the statement of cash flows,including the disclosure of their individual elements.

Required:

a. Practice requires the classification of cash inflows and outflows into three categories. Identify and describethose categories.

b. Which noncash activities are reported in the statement of cash flows and how are they reported?

c. Assume First Corporation retains you to consult with them on preparation of the statement of cash flows usingthe indirect method for the year ended December 31, Year 8. Advise them on how the following separate itemsaffect the statement of cash flows and how they are shown on the statement:

(1) Net income for the fiscal year is $950,000, including an extraordinary gain of $60,000.

(2) Depreciation expense of $80,000 is included in the income statement.

(3) Uncollectible accounts receivable of $50,000 are written off against the allowance for uncollectibleaccounts. Bad debts expense of $24,000 is included in determining earnings for the year, and the same$24,000 amount is added to the allowance for uncollectible accounts.

(4) Accounts receivable increase by $140,000 during the year and inventories decline by $60,000.

(5) Taxes paid to governments amount to $380,000.

(6) A gain of $5,000 is realized on the sale of a machine; it originally cost $75,000 and $25,000 is underappreciated on the date of sale.

(7) On June 5, Year 8, buildings and land are purchased for $600,000; First Corp. gave in payment $100,000cash, $200,000 in market value of its unissued common stock, and a $300,000 mortgage note.

(8) On August 8, Year 8, First Corp. converts $700,000 face value of its 6% convertible debentures into$140,000 par value of its common stock. The bonds are originally issued at face value.

(9) The board of directors declares a $320,000 cash dividend on October 30, Year 8, payable on January 15,Year 9, to stockholders of record on November 15, Year 8.

(10) On December 15, Year 8, First Corp. declares a 2-for-1 stock split payable on December 25, Year 8.