Statement of Cash FlowsIndirect Method

The following statement of cash flows for Shasta Inc. was not correctly prepared. 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, 20Y9
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 (used for) investing activities:
Cash from sale of investments			$240,000
Cash used for purchase of land			(259,200)
Cash used for purchase of equipment			(432,000)
Net cash flow used for investing activities					(415,200)
Cash flows from (used for) 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

a. Answer the following questions. Use your answers to help you in locating errors for the above statement of cash flows.

Item	Yes or No
1. Depreciation should be added to net income.
2. Gain on sale of investments should be added to net income.
3. Increases in accounts payable should be deducted from net income.
4. Increases in accounts receivable should be added to net income.
5. Cash paid for property, plant, and equipment should be deducted under investing.
6. Cash received from sale of common stock should be added under financing.
7. Cash paid for dividends should be added under financing.

b. Enter the corrected amounts below. Use the minus sign to indicate cash outflows, cash payments, decreases in cash, or any negative adjustments.

Net cash flow from operating activities
Net cash flow used for investing activities
Net cash flow provided by financing activities

c. Prepare a corrected statement of cash flows. Use the minus sign to indicate cash outflows, cash payments, decreases in cash, or any negative adjustments.

SHASTA INC.
Statement of Cash Flows
For the Year Ended December 31, 20Y9
Cash flows from operating activities:
Adjustments to reconcile net income to net cash flow from operating activities:
Changes in current operating assets and liabilities:
Net cash flow from operating activities
Cash flows from (used for) investing activities:
Net cash flow from investing activities
Cash flows from (used for) financing activities:
Net cash flow from financing activities
Cash at the beginning of the year
Cash at the end of the year