Practice prompt · Q:transactions-to-statements/cash-flow-controls-001

Diagnose errors that survive the Cash tie

Formative control check on pure reclassification and fictitious offsetting cash flows for a noncash equipment acquisition.

Updated Aug 6, 2026 Review due Nov 6, 2026

Practice

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A draft statement begins with $20,000 Cash and ends with $24,000. It reports $12,000 operating, negative $9,000 investing, and $1,000 financing cash flow. The operating section includes a $4,000 bank borrowing. The investing section includes a $3,000 outflow for equipment acquired directly by issuing a note, and financing includes a matching $3,000 inflow. Which correction is supported?

Choose the best answer. A Accept both statements because each moves beginning Cash to the correct ending Cash; a tie proves the categories and transaction set. B Move the $4,000 borrowing from operating to financing, remove both $3,000 cash rows for the equipment-for-note exchange, disclose that exchange separately, and retain the $24,000 ending Cash tie. C Keep the borrowing in operating but remove only the $3,000 investing outflow; ending Cash should rise to $27,000. D Move the owner distribution to operating expense so operating cash flow and net income use the same transaction set.

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Answer: B

The corrected statement reports $8,000 operating, negative $6,000 investing, and $2,000 financing cash flow, for a $4,000 net increase and $24,000 ending Cash. The $3,000 equipment-for-note exchange is separately disclosed as noncash investing and financing activity. Both defects can survive the grand- total tie, so transaction-level evidence is required. Choice B is correct.