Chapter 16, Problem 16.18EX

Statement of cash flows—indirect method

The following statement of cash flows for Shasta Inc. was not correctly prepared:

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 are liabilities:
Increase in accounts receivable......................	27,360
Increase in inventories..............................	(36,000)
Increase in accounts payable........................	(3,600)
Decrease in accrued expenses payable...............	(12,400)
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 from sale of common stock.........................	$ 312,000
Cash used for dividends.................................	(132,000)
Net cash flow from financing activities....................		180,000
Increase (decrease) in cash..................................		$ 47,760
Cash at the end of the year..................................		192,240
Cash at the beginning of the year............................		$240,000

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.