Statement of cash flows—indirect method OBJ. 2 List the errors you find in the following statement of cash flows. The cash balance at the beginning of the year was $240,000. All other amounts are correct, except the cash balance at the end of the year.

Shasta Inc.

Statement of Cash Flows For the Year Ended December 31, 2016 Cash flows from operating activities:

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $360,000 Adjustments to reconcile net income to net cash flow from operating activities:

Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,800 Gain on sale of investments . . . . . . . . . . . . . . . . . . . . . . . . . . 17,280 Changes in current operating assets and liabilities:

Increase in accounts receivable . . . . . . . . . . . . . . . . . . . . . 27,360 Increase in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (36,000)

Increase in accounts payable . . . . . . . . . . . . . . . . . . . . . . . (3,600)

Decrease in accrued expenses payable . . . . . . . . . . . . . . (2,400)

Net cash flow from operating activities . . . . . . . . . . . . . . . . . . . $ 463,440 Cash flows from investing activities:

Cash received from sale of investments . . . . . . . . . . . . . . . . . . . $240,000 Less: Cash paid for purchase of land . . . . . . . . . . . . . . . . . . . . . . $259,200 Cash paid for purchase of equipment . . . . . . . . . . . . . . . 432,000 691,200 Net cash flow used for investing activities . . . . . . . . . . . . . . . . (415,200)

Cash flows from financing activities:

Cash received from sale of common stock . . . . . . . . . . . . . . . . $312,000 Cash paid for dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132,000 Net cash flow from financing activities . . . . . . . . . . . . . . . . . . . 180,000 Increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,760 Cash at the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192,240 Cash at the beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . $240,000