Case 1. Design Incorporated experienced a downturn in December sales. To make matters worse. many recent sales were on account, because many customers were not paying on their accounts, the ending balance of Accounts Receivable at December 31 was higher than the beginning balance Because the business had a dramatic need for cash, a prime piece of land owned by the company was sold for cash in December, at a substantial gain. Design Incorporated had purchased the land 10 years earlier and properly classified it as a long-term investment The CEO, Jim Shady, was looking over the financial statements and saw the company's weak operating cash flows. He approached the accountant to ask why the December cash flows pro vided from operations were so weak, given that the land had been sold. The accountant explained that because the indirect method was used in preparing the cash flow statement, certain adjust ments to net income were required. To begin with the increase in accounts receivable was a decreasing adjustment made in arriving at the net cash provided from operating activities. Next the large gain recognized on the sale of land had to be adjusted by subtracting it from the net income in arriving at the cash provided by operating activities. These large negative adjustments drastically reduced the reported cash provided from that category of cash flows. The accountant then explained that the cash proceeds from the land sale were included cash flows in the investing activities section Jim became worried because he remembered the bank telling him about the importance of strong operating cash flows, so he told the accountant to redo the statement but not to reduce the net income by the accounts receivable increase or the gain on the land see the accountant refused because these adjustments were necessary in order to properly are at the net cash pro- vided from operating activities, these adjustments were not made, then the net change in cash could not be reconciled, Jim finally agreed but then told the accountant to just viclude the cash proceeds from the sale of land in the operating activities rather than in the t esting activities. The accountant said that would be wrong. Besides, everyone would know that proceeds from the sole of land should be an esting activity lim then suggested listing it as other in the operating section so no one would ever know that it wasn't an operating cash flow Requirements 1. Why didn't lim want the accountant to decrease the net income by the increase in accounts receivable and the gain on the land sale? Why do you finally agreed with the accountant? 2. Could the operating cash flows be increased by including the cash proceeds from the busting them as other rather than as land sale proceed? What Cal concerns are involved? Do you have any other thoughts