Question

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

b. Enter the corrected amounts below. Use the minus sign to indicate cash out flows, 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	$

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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 used for purchase of land
Cash used for purchase of equipment
Net cash flow from investing activities
Cash flows from (used for) financing activities
Cash from sale of common stock	$
Cash used for dividends
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:-

Shasta Inc.
Statement of Cash Flow (Using Indirect Method)
For the year ended December 31,20Y9
Particulars	Amount
	$
Cash flow from opreating activities
Net Income	360000
Adjustments to reconcile net income to net cash provided by opreating activities
Adjustment for non cash effects
Depreciation	100800
Gain on sale of investments	-17280
Change in opreating assets & liabilities
Increase in Accounts Receiviable	-27360
Increase in Inventory	-36000
Increase in Accounts payable	3600
Decrease in accrued expenses payable	-2400
Net cash flow from opreating activities (a)	381360
Cash Flow from Financing activities
Issue of common stock	312000
Cash dividend paid	-132000
Net cash Flow from Financing activities (b)	180000
Cash Flow from Investing activities
Cash from sale of investments	240000
Cash used for purchase of Land	-259200
Cash used for purchase of Equipment	-432000
Net cash Flow from Investing activities (c)	-451200
Net Channge in cash c=a+b+c	110160
Beginning cash balance	240000
Closing cash balance	350160