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

### Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

Chapter
Section

### Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 16, Problem 18E
Textbook Problem
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## The following statement of cash flows for Shasta Inc. was not correctly prepared: Â Â Â Â Â Â  a.Â Â Â Â Â Â Â Â Â Â Â  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. Â Â Â Â Â  b.Â Â Â Â Â Â Â Â Â Â Â  Prepare a corrected statement of cash flows.

a.

To determine

List errors in the statement of cash flows.

### Explanation of Solution

Statement of cash flows: It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company.

Indirect method: Under this method, the following amounts are to be adjusted from the Net Income to calculate the net cash provided from operating activities.

Cash flows from operating activities: These are the cash produced by the normal business operations.

The below table shows the way of calculation of cash flows from operating activities:

 Cash flows from operating activities (Indirect method) Â Add: Decrease in current assets Â Â Â Â Â Â Â Â  Increase in current liability Â Â Â Â Â Â Â Â  Depreciation expense and amortization expense Â Â Â Â Â Â Â Â  Loss on sale of plant assets Â Deduct: Increase in current assets Â Â Â Â Â Â Â Â Â Â Â Â Â  Decrease in current liabilities Â Â Â Â Â Â Â Â Â Â Â Â Â  Gain on sale of plant assets Net cash provided from or used by operating activities

Table (1)

Cash flows from investing activities: Cash provided by or used in investing activities is a section of statement of cash flows. It includes the purchase or sale of equipment or land, or marketable securities, which is used for business operations.

The below table shows the way of calculation of cash flows from investing activities:

 Cash flows from investing activities Â Add: Proceeds from sale of fixed assets Â Â Â Â Â Â Â Â  Sale of marketable securities / investments Â Â Â Â Â Â Â Â  Interest received Â Â Â Â Â Â Â Â  Dividend received Â Deduct: Purchase of fixed assets/long-lived assets Â Â Â Â Â Â Â Â Â Â Â Â Â  Purchase of marketable securities Net cash provided from or used by investing activities

Table (2)

Cash flows from financing activities: Cash provided by or used in financing activities is a section of statement of cash flows...

b.

To determine

Prepare corrected statement of cash flows.

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