Question

Statement of Cash Flows—Indirect 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

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:
Net income	$
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation
Gain on sale of investments
Changes in current operating assets and liabilities:
Increase in accounts receivable
Increase in inventories
Increase in accounts payable
Decrease in accrued expenses payable
Net cash flow from operating activities		$
Cash flows from (used for) investing activities:
Cash from sale of investments	$
Cash paid for dividends
Cash paid for purchase of equipment
Net cash flow from investing activities
Cash flows from (used for) financing activities:
Cash from sale of common stock	$
Cash received from sale of land
Net cash flow from financing activities
Increase in cash		$
Cash at the beginning of the year
Cash at the end of the year		$

Answer 1

Answer:

Statement of Cash Flows
For the Year Ended December 31, 20Y9
Cash flows from operating activities:
Net income	$ 360,000.00
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation	$ 100,800.00
Gain on sale of investments	$ (17,280.00)
Changes in current operating assets and liabilities:
Increase in accounts receivable	$ (27,360.00)
Increase in inventories	$ (36,000.00)
Increase in accounts payable	$      3,600.00
Decrease in accrued expenses payable	$     (2,400.00)
Net cash flow from operating activities		$ 381,360.00
Cash flows from (used for) investing activities:
Cash from sale of investments	$ 240,000.00
Cash paid for purchase of land	$(259,200.00)
Cash paid for purchase of equipment	$(432,000.00)
Net cash flow from investing activities		$(451,200.00)
Cash flows from (used for) financing activities:
Cash from sale of common stock	$ 312,000.00
Cash paid for dividends	$(132,000.00)
Net cash flow from financing activities		$ 180,000.00
Increase in cash		$ 110,160.00
Cash at the beginning of the year		$ 240,000.00
Cash at the end of the year		$ 350,160.00

Note:

Following adjustments are made in the question:

• The question mentions cash used for purchase of land, but in the answer, it is taken as cash received from sale of land. As no information is given, it is taken as purchase.
• In the format answer, cash paid for dividend is taken in Investing activities, which is incorrect. The answer has now been given considering it in Financing activities.
• In the format answer, cash received from purchase of land is taken in FInancing activities, which is incorrect. The answer has now been given considering it in Investing activities.

In case of any doubt, please comment.