Shasta Inc.
Statement of Cash Flows
For the Year Ended December 31, 2014
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 investing activities:
Cash received from sale of investments . . . . . . . . . . . . . . . . . . . $240,000
Less: Cash paid for purchase of land . . . . . . . . . . . . . . . . . . . . . . $259,200
Cash paid for purchase of equipment . . . . . . . . . . . . . . . 432,000 691,200
Net cash flow used for investing activities . . . . . . . . . . . . . . . . (415,200)
Cash flows from 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
Answer:
1. The increase in accounts receivable should be deducted from net income in the Cash Flows from Operating Activities section.
2. The gain on the sale of investments should be deducted from net income in the Cash Flows from Operating Activities section.
3. The increase in accounts payable should be added to net income in the Cash Flows from Operating Activities section.
4. The correct amount of cash at the beginning of the year, $240,000, should be added to the increase in cash.
5. The final amount should be the amount of cash at the end of the year, $350,160.
6. The final amount of net cash flow from operating activities is $381,360.
7. The “cash paid for dividends” should be preceded by “Less:”.
A correct statement of cash flows would be as follows:
SHASTA INC.
Statement of Cash Flows
For the Year Ended December 31, 2014
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 $ 381,360
Cash flows from investing activities:
Cash received from sale of investments $240,000
Less: Cash paid for purchase of land $259,200
Cash paid for purchase of equip. 432,000 691,200
Net cash flow used for investing activities (451,200)
Cash flows from financing activities:
Cash received from sale of common stock $312,000
Less: Cash paid for dividends 132,000
Net cash flow from financing activities 180,000
Increase in cash $ 110,160
Cash at the beginning of the year 240,000
Cash at the end of the year $ 350,160