Shasta Inc.Statement of Cash FlowsFor the Year Ended December 31, 20Y9Cash flows from operating activities:Net income....Adjustments to reconcile net income to netcash flow from operating activities:$ 360,000Depreciation....Gain on sale of investments....Changes in current operating assets and liabilities:Increase in accounts receivable......100,80017,28027,360(36,000)Increase in inventories......Increase in accounts payable .....Decrease in accrued expenses payable..Net cash flow from operating activitiesCash flows from (used for) investing activities:Cash from sale of investments....Cash used for purchase of land.Cash used for purchase of equipment.(3,600)(2,400)$ 463,440$ 240,000(259,200)(432,000)Net cash flow used for investing activities..Cash flows from (used for) financing activities:Cash from sale of common stock ....(415,200)$ 312,000Cash used for dividends ...(132,000)Net cash flow from financing activities.Increase (decrease) in cash.....180,000$ 47,760Cash at the end of the year...192,240Cash at the beginning of the year...$240,000

Question
Asked Dec 21, 2019
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The following statement of cash flows for Shasta Inc. was not correctly prepared:

Please see  the attachment for details:

a. List the errors you find in the 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.
b. Prepare a corrected statement of cash flows.

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:
$ 360,000
Depreciation....
Gain on sale of investments....
Changes in current operating assets and liabilities:
Increase in accounts receivable......
100,800
17,280
27,360
(36,000)
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.
(3,600)
(2,400)
$ 463,440
$ 240,000
(259,200)
(432,000)
Net cash flow used for investing activities..
Cash flows from (used for) financing activities:
Cash from sale of common stock ....
(415,200)
$ 312,000
Cash used for dividends ...
(132,000)
Net cash flow from financing activities.
Increase (decrease) in cash.....
180,000
$ 47,760
Cash at the end of the year...
192,240
Cash at the beginning of the year...
$240,000
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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: $ 360,000 Depreciation.... Gain on sale of investments.... Changes in current operating assets and liabilities: Increase in accounts receivable...... 100,800 17,280 27,360 (36,000) 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. (3,600) (2,400) $ 463,440 $ 240,000 (259,200) (432,000) Net cash flow used for investing activities.. Cash flows from (used for) financing activities: Cash from sale of common stock .... (415,200) $ 312,000 Cash used for dividends ... (132,000) Net cash flow from financing activities. Increase (decrease) in cash..... 180,000 $ 47,760 Cash at the end of the year... 192,240 Cash at the beginning of the year... $240,000

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Expert Answer

Step 1

a. List the errors that are in the given statement of cash flows.

  • In cash flow from operating activities, the gain on sale of investments ($17,280) should be deducted from net income to determine the net cash flow from operating activities.
  • In cash flow from operating activities, the increase in accounts receivable ($27,360) should be deducted from net income to determine the net cash flow from operating activities.
  • In cash flow from operating activities, the increase in accounts pay...

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