Required:

1. Prepare a complete statement of cash flows using the DIRECT METHOD of year 2.

2. Prepare the operating activities section only for statement of cash flows using INDIRECT METHOD for year 2.

Presented below are the balance sheets of Ace Corporation as of December 31, Year 1 and Year 2, and the income statement for the year ended December 31, Year 2. The statement of retained earnings for the year ended December 31, Year 2 is on the next page. All dollars are in thousands Ace Corporation Balance Sheets December 31, Year 1 and Year 2 Year 2 $127 253 Year 1 $ 85 245 Assets as Accounts receivable Less: Allowance for doubtful accounts Prepaid insurance Inventory Long-term investment Land Buildings and equipment Less: Accumulated depreciation Trademark Total Assets 15 225 65 160 250 (75) 25 S_986 234 42 160 300 (100) $1036 Liabilities & Stockholders' Equity Accounts payable Salaries payable Deferred tax liability Lease liability Bonds Payable Less: Discount Common Stock Paid-In Capital -in excess of par Preferred Stock Retained Earnings Total Liabilities & Stockholders' Equity S 50 S 36 75 125 (24) 280 105 70 345 275 (26) 250 75 338 $ 986 $1036 Ace Corporation Income Statement For the Year Ended December 31, Year 2 Net sales revenue Investment revenue 380 Operating Expenses Cost of Goods Salaries Cxpense Depreciation expense Trademark amortization Bad debts expense Insurance expense Bond interest expense 58 35 20 45 319 73 Operating Income Other Income (Expense) Loss on building fir Gain on sale of investments S(27) 4 (23) $50 25 $ 25 Pre-Tax Income from Continuing Operations Less: Income laxX EXpense Net Income Additional Information: 1. Shareholders were paid cash dividends of $18 million 2. A building that originally cost $40 million, and which was one-fourth depreciated, was destroyed by firc. Some undamaged parts were sold for $3 million Corporation, an equity method investee preferred stock was sold at par million liability to increase by $3 million of lease payments, $90 million. Annual lease payments of $15 million arc paid at January 3. Investment revenue includes Ace Corporation's $7 million share of the net income of Bcta 4. $30 million par value of common stock was sold for $60 million, and $70 million of 5. A long-term investment in bonds, originally purchased for $30 million, was sold for $34 6. Pretax accounting income exceeded taxable income causing the deferred income tax 7. The right to use a building was acquired with a seven-year lease agreement; present value 1st of each year starting in Year 2 8. $150 million of bonds were retired at maturity