PAS 7: Statement of Cash Flows

CPAR

1. Which of the following concepts of cash is not appropriate to use in preparing the statement of cash flows?
a. cash
b. cash and money market funds
c. cash and cash equivalents
d. cash and U.S. treasury bonds

2. On the statement of cash flows, the cash flows from operating activities section would include
a. receipts from the issuance of capital stock
b. receipts from the sale of investments
c. payments for the acquisition of investments
d. cash receipts from sales activities

3. A statement of cash flows would not disclose the effects of which of the following transactions?
a. stock dividends declared
b. bonds payable exchanged for capital stock
c. purchase of treasury stock
d. capital stock issued to acquire fixed assets

4. Which of the following does not represent an outflow of cash and therefore would not be reported on the
statement of cash flows as a use of cash?
a. purchase of noncurrent assets
b. purchase of treasury stock
c. discarding an asset that had been fully depreciated
d. payment of cash dividends

5. In preparing a statement of cash flows, cash flows from operating activities

a. are always equal to accrual accounting income.

b. are calculated as the difference between revenues and expenses.
c. can be calculated by appropriately adding to or deducting from net income those items in the income
statement that do not affect cash.
d. can be calculated by appropriately adding to or deducting from net income those items in the income
statement that do affect cash.

6. In preparing a statement of cash flows, which of the following transactions would be considered an investing
activity?

a. Sale of equipment at book value

b. Sale of merchandise on credit
c. Declaration of a cash dividend
d. Issuance of bonds payable at a discount

7. Preparing the statement of cash flows involves all of the following except determining the

a. cash provided by operations.

b. cash provided by or used in investing and financing activities.
c. change in cash during the period.
d. cash collections from customers during the period.

8. The financial statement which summarizes operating, investing, and financing activities of an entity for a period of
time is the
 a. retained earnings statement.
b. income statement.
c. statement of cash flows.
d. statement of financial position.

9. The statement of cash flows provides answers to all of the following questions except

a. Where did the cash come from during the period?

b. What was the cash used for during the period?
c. What is the impact of inflation on the cash balance at the end of the year?
d. What was the change in the cash balance during the period?
10. A ten-year bond was issued at par for $150,000 cash. This transaction should be shown on a statement of cash
flows under
a. investing activities
b. financing activities
c. noncash investing and financing activities
d. operating activities
11. The net income reported on the income statement for the current year was $275,000. Depreciation recorded on
fixed assets and amortizations of patents for the year were $40,000 and $9,000, respectively. Balances of
current asset and current liability accounts at the end and at the beginning of the year are as follows:

End Beginning

Cash $ 50,000 $ 60,000

Accounts receivable 112,000 108,000

Inventories 105,000 93,000

Prepaid expenses 4,500 6,500

Accounts payable (merchandise creditors) 75,000 89,000

What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the
indirect method?

a. $198,000
b. $324,000
c. $352,000
d. $296,000

12. The following information is available from the current period financial statements:

Net income $140,000

Depreciation expense 28,000

Increase in accounts receivable 16,000

Decrease in accounts payable 21,000

The net cash flow from operating activities using the indirect method is

a. $131,000
b. $163,000
c. $107,000

d. $205,000

13. Cash paid for equipment would be reported in the statement of cash flows in
a. the cash flows from operating activities section
b. the cash flows from financing activities section
c. the cash flows from investing activities section
d. a separate schedule

14. Quince Holman Corporation reports:

Cash provided by operating activities $250,000

Cash used by investing activities 110,000
Cash provided by financing activities 140,000
Beginning cash balance 70,000
What is Holman’s ending cash balance?

a. $280,000.
b. $350,000.
c. $500,000.
d. $570,000.

15. Gordman Corporation reports:

Cash provided by operating activities $200,000

Cash used by investing activities 110,000
Cash provided by financing activities 140,000
Beginning cash balance 70,000
What is Gordman’s ending cash balance?

a. $230,000.
b. $300,000.
c. $450,000.
d. $520,000.

16. Craig Rusch Corporation reports the following information:

Net income $500,000

Depreciation expense 140,000

Increase in accounts receivable 60,000

Rusch should report cash provided by operating activities of

a. $300,000.
b. $420,000.
c. $580,000.
d. $700,000.

17. Porter Corporation reports the following information: (17)

 Net income $250,000

Depreciation expense 70,000

Increase in accounts receivable 30,000

Porter should report cash provided by operating activities of

a. $150,000.

b. $210,000.

c. $290,000.

d. $350,000.

18. In a statement of cash flows, interest payments to lenders and other creditors should be classified as cash
outflows for

a. operating activities.
b. borrowing activities.
c. lending activities.
d. financing activities.

19. If a gain of $9,000 is incurred in selling (for cash) office equipment having a book value of $55,000, the total
amount reported in the cash flows from investing activities section of the statement of cash flows is
a. $46,000
b. $9,000
c. $55,000
d. $64,000

20. Land costing $47,000 was sold for $78,000 cash. The gain on the sale was reported on the income statement as
other income. On the statement of cash flows, what amount should be reported as an investing activity from the
sale of land?
a. $78,000
b. $47,000
c. $109,000
d. $31,000

ReSA

1. (Operating Activities---Indirect method)

Darwin Company provided the following relevant information involving its operating activities for the year ended
December 31, 2014.

12.31.13 12.31.14
Accrued interest payable recognized P40,000 P50,000
Depreciation expense recognized 72,800 75,600
Prepaid expense recognized 3,100 4,940

For the year ended December 31, 2014, Darwin Company reported a net income after tax of P648,000. What is
the net cash flow from operating activities that would be shown in its cash flow statement?

a. P637,040 c. P731,760

b. P637,080 d. P735,440
2. Options Corporation sold some of its plant assets during 2014. The original cost of the plant assets was P600,000
and the accumulated depreciation at the date of sale was P560,000. The proceeds from the sale of the plant
assets were P85,000.

The information concerning the sale of the plant assets should be shown on Option’s statement of cash flows
(indirect method) for the year ended December 31, 2014 as

a. A subtraction from net income of P45,000 and a P40,000 increase in cash flow from financing activities.

b. An addition to net income of P45,000 and an P85,000 increase in cash flow from investing activities.

c. A subtraction from net income of P45,000 and an P85,000 increase in cash flow investing activities.

d. An addition of P85,000 to net income.

3. On January 2, 2014, Grateful Company, a property developer, purchase a land and buildings which the company
will redevelop and sell. The cost of buying the land and buildings was P20,000,000. Additonal cost incurred in
relation to the acquisition of the assets totaled P500,000.

In the statement of cash flows, how should the acquisition be disclosed?

a. as an investing activity outflow of P20,500,000

b. as an operating activity outflow of P20,500,000

c. as a financing activity outflow of P20,500,000

d. as an investing activity outflow of P20,000,000 and operating activity outflow of P500,000

4. Dimensional Company, a parent company pays P20,000,000 in cash and issues P80,000,000 in shares to acquire
subsidiary with a cash balance of P30,000,000 and other net assets including goodwill of P70,000,000.

In the statement of cash flows, how should Dimensional Company present the acquisition of the subsidiary?

a. An outflow of P20,000,000 from investing activity

b. An inflow of P30,000,000 from investing activity

c. An outflow of P20,000,000 from operating activity

d. A net inflow of P10,000,000 from investing activity despite the transaction being an acquisition

5. Triumph Company acquired a subsidiary. As part of the purchased agreement the subsidiary’s shareholders
authorized a P5,000,000 dividend, pre-acquisition, that is payable to the former shareholders (the vendor). The
purchase consideration payable for the acquisition was reduced by the amount of the dividend. The dividend was
paid after the date of acquisition.

In the statement of cash flows, how should Triumph Company present the payment of dividend?

a. An outflow of P5,000,000 in its investing activity

b. An outflow of P5,000,000 in its operating activity

c. An outflow of P5,000,000 in its financing activity

 d. is not presented in any of the activity

6. A flood damaged a building and its contents. Floods are unusual and infrequent in this area. The receipts from
insurance companies totaled P200,000, which was P60,000 less than the book values. The tax rate is 32%.

How should the receipts from insurance companies be shown in the statement of cash?

a. Addition to net income of P136,000.

b. Inflow from investing activities of P136,000.

c. Inflow from investing activities of P200,000.

d. Not to be shown.

7. The balance in Accumulated Profits and Losses at December 31, 2013 was P720,000 and at December 31, 2014
was P582,000. Net income for 2014 was P500,000. A share dividend was declared and distributed which
increased ordinary share by P200,000 and share premium by P110,000. A cash dividend was declared and paid.

What is the amount of cash dividends being declared and paid?

a. P248,000 c. P442,000

b. P328,000 d. P638,000

Use the following information for items 8 and 9:

The following information is available about the transactions of Mortal Company for the year ended December 31,
2014:

Depreciation P 880,000

Cash paid for expenses 2,270,000

Increase in inventories 370,000

Cash paid to employees 2,820,000

Decrease in receivables 280,000

Cash paid to suppliers 4,940,000

Decrease in payables 390,000

Cash received from customers 12,800,000

Net profit before taxation 2,370,000

Mortal Company has no interest payable or investment income.

8. What is the amount of net cash flows from operating activities using the indirect approach?

a. P2,270,000 c. P3,250,000

b. P2,770,000 d. P3,730,000

9. How much is the net cash flows from operating activities using the direct approach?

a. P2,270,000 c. P2,775,000
 b. P2,770,000 d. P3,730,000

10. Personality Company’s prepaid insurance was P100,000 at December 31, 2014 and P50,000 at December 31,
2013. Insurance expense was P40,000 for 2014 and P30,000 for 2013. What amount of cash disbursements for
insurance would be reported in Personality’s 2014 net cash flows from operating activities presented on a direct
basis?

a. P40,000 c. P90,000

b. P60,000 d. P110,000

11. (Operating Activities – Indirect Method)

The net cash provided by operating activities in Brand Company’s statement of cash flows for 2014 was
P770,000. For 2014, depreciation of plant assets was P300,000, impairment of goodwill was P50,000 and cash
dividends paid on ordinary share was P360,000.

Based only on the information given above, how much is Brand’s 2014 net income?

a. P60,000 c. P770,000

b. P420,000 d. P780,000

12. (Operating Activities – Direct Method)

Canary, Inc. sells products to department stores in Metro Manila. The beginning and ending balances of the
company’s inventory and accounts payable during 2014 follow:
January 1, 2014 December 31, 2014
Inventory P150,000 P120,000
Accounts payable 102,000 78,000

Canary’s cost of sale was reported at P1,380,000 on its income statement and uses the indirect method in
preparing the statement of cash flows.

How much was the cash payments made to its suppliers?

a. P1,286,000 c. P1,626,000

b. P1,374,000 d. P1,680,000

Use the following information for items 13 and 14:

Victory Company sold its heavy equipment for P15,000,000 on December 31, 2014 but immediately leased it back
for a period of 5 years. The equipment has a carrying value of P10,000,000 on December 31, 2014.

13. If the leaseback is treated as an operating lease, how should Victory Company present the sale in its cash flow
statement?

a. An inflow of P15,000,000 from investing activity

b. An inflow of P15,000,000 from financing activity

 c. An inflow of P15,000,000 from investing and outflow of P5,000,000 operating activity (indirect method)

d. An inflow of P15,000,000 from financing and outflow of P5,000,000 operating activity (indirect method)

14. If the leaseback is treated as finance lease, how should Victory Company present the sale in its cash flow
statement?

a. An inflow of P15,000,000 from investing activity

b. An inflow of P15,000,000 from financing activity

c. An inflow of P15,000,000 from investing and outflow of P5,000,000 operating activity (indirect method)

d. An inflow of P15,000,000 from financing and outflow of P5,000,000 operating activity (indirect method)

15. In 2014, a typhoon completely destroyed a building belonging to Carpet Corporation. The building cost
P2,500,000 and had accumulated depreciation of P1,200,000 at this time of the loss. Carpet received a cash
settlement from the insurance company and reported a loss of P525,000.

In carpet’s 2014 cash flow statement, how much would be the net changes that would be reported in the cash
flows from investing activities section?

a. P250,000 increase c. P775,000 increase

b. P525,000 increase d. P1,300,000 increase

Use the following information for items 16 and 17:

Groovy Corporation provided the following information on selected transactions during 2014:
Purchase of land by issuing bonds, P400,000; proceeds from issuing bonds, P800,000; purchase of
inventories, P1,520,000; purchases of treasury shares, P240,000; loans made to affiliated corporations,
P560,000; dividends paid to preference shareholders, P160,000; proceeds from issuing preference share,
P640,000; and proceeds from sale of equipment, P80,000.

16. How much would be the net cash provided (used) by investing activities during 2014?

a. (480,000) c. (P880,000)

b. P80,000 d. (P2,000,000)

17. How much would be the net cash provided by financing activities during 2014?

a. P 880,000 c. P1,280,000

b. P1,040,000 d. P1,440,000

Use the following information for items 18 and 19:

 In preparing its cash flow statement for the year 2014, Fish Company gathered the following data:
Gain on sale of equipment 60,000
Proceeds from sale of equipment 100,000
Purchase of bonds, par P2,000,000 1,800,000
Amortization of bond discount 20,000
Dividends declared 450,000
Dividends paid 380,000
Proceeds from sale of treasury share (carrying amount, P650,000) 750,000

18. In its 2014 statement of cash flows, how much should Fish Company report as net cash used in investing
activities?

a. P1,700,000 c. P1,880,000

b. P1,760,000 d. P1,940,000

19. In its 2014 statement of cash flows, how much should Fish Company report as net cash provided by
financing activities?

a. P200,000 c. P270,000

b. P300,000 d. P370,000

20. Goldfish Corporation had the following activities during 2014:

 Acquired 2,000 shares of stock in Starfish, Inc. for P260,000.

 Sold an investment in Water for P350,000 when the carrying value was P330,000.

 Acquired a P500,000, 4-year certificate of deposit from a bank (during the year, interest of P37,500
was paid to Goldfish).

 Collected dividends of P12,000 on available for sale investment.

In Goldfish Corporation’s 2014 statement of cash flows, how much should be the net cash used in investing
activities?

a. P372,500 c. P398,000

b. P380,500 d. P410,000

VSA – IRS

1. It is a basic component of the financial statements which summarizes the operating, investing, and financing
activities of an entity.

a. Profit or loss statement. c. Statement of financial position.

b. Cash flow statement. d. Statement of changes in equity.

2. The primary purpose of the cash flow statement is

 a. To provide relevant information about cash receipts and cash payments of an entity during a period.

b. To help investors, creditors and other users to assess the entity’s ability to generate positive future net cash
flows.

c. To disclose separately noncash investing and financing activities.

d. To assess the ability of the entity to pay dividends to shareholders.

3. An entity shall prepare a cash flow statement and shall present it as

a. Supplementary financial statement.

b. Note to financial statement.

c. Supporting schedule for amount appearing as cash and cash equivalents.

d. Integral part of the enterprise’s basic financial statements.

4. Cash comprises

a. Cash on hand and demand deposit.

b. Cash on hand, demand deposits and cash equivalents.

c. Cash on hand and cash equivalents.

d. Demand deposits and cash equivalents.

5. Which of the following can qualify as cash equivalent?

a. One-year BSP treasury bill.

b. Sixth-month money market placement.

c. Equity securities.

d. Preference shares with specified redemption date and acquired three months before redemption date.

6. Which is false regarding statement of cash flows?

a. Operating activities are the cash flows derived primarily from the principal revenue producing activities of the
entity.

b. Investing activities are the cash flows derived from the acquisition and disposal of long-term assets and other
investments not included in cash equivalents.

c. Financing activities are the cash flows derived from the equity capital and borrowings of the entity.

d. None of these.

7. Bank overdrafts that are repayable on demand and the bank balance often fluctuate from positive to overdrawn
shall be classified as

a. Operating activities. c. Financing activities.

 b. Investing activities. d. Component of cash and cash equivalents.

8. The following are examples of cash flows from operating activities, except

a. Cash receipts from sale of goods and rendering of services.

b. Cash receipts from royalties, rental, fees, commissions and other revenue.

c. Cash payments to suppliers for goods and services.

d. Cash payments to acquire property, plant and equipment, intangibles and other long-term assets.

9. Which of the following statements is correct with regards cash flows?

a. Cash receipts from royalties, fees, commissions and other revenue are cash outflows for operating activities.

b. Cash flows arising from the purchase and sale of dealing or trading securities are classified as investing
activities.

c. Cash flows arising from income taxes should be separately disclosed and should be classified as cash flows
from operating activities.

d. Cash advances and loans made by a financial institution are usually classified as investing activities.

10. Which of the following is not considered an investing activity?

a. Cash payments to acquire property, plant and equipment.

b. Cash advances and loans to other parties.

c. Cash payments for futures contract, forward contract, option contract and swap contract.

d. Cash receipts from issuing shares or other equity instruments.

11. The following are examples of cash flows from financing activities, except

a. Cash receipts from issuing shares or other equity instruments, for example, issuance of ordinary and
preference shares.

b. Cash payments to owners to acquire or redeem the enterprise’s shares, for example, payment for treasury
share.

c. Cash payment to acquire equity or debt instruments of other enterprises

d. Cash receipts from issuing debentures, loans, notes, bonds, mortgages, and other short or long term
borrowings.

12. As a benchmark treatment, interest paid and interest received are classified as part of

a. Operating cash flows. c. Financing cash flows.

b. Investing cash flows. d. Any of these.

13. Dividends paid should be classified as

 a. An operating cash flow as a benchmark treatment.

b. A financing cash flow as a benchmark treatment.

c. A financing cash flow as an alternative treatment.

d. An investing activity as an alternative treatment.

14. As a benchmark treatment, dividend received should be classified as

a. Operating cash flow. c. Financing cash flow.

b. Investing cash flow. d. None of these.

15. Alternatively, dividend received may be classified as a(n)

a. Operating cash flow. c. Financing cash flow.

b. Investing cash flow. d. None of these.

16. Statement 1: The direct method of presenting cash flow statement shows in detail or itemizes the major classes
of gross cash receipts and gross cash payments

Statement 2: The indirect method of presenting the net cash flow from operating activities begins with the accrual
basis net income and applies a series of adjustments to convert the income to cash basis.

a. Only statement 1 is correct. c. Both statements are correct.

b. Only statement 2 is correct. d. Both statements are wrong.

17. An entity shall report cash flows from operating activities using

a. Direct method.

b. Indirect method.

c. Either direct method or indirect method.

d. Neither direct method nor indirect method.

18. An entity shall report cash flows from investing and financing activities using

a. Direct method.

b. Indirect method.

c. Either direct method or indirect method.

d. Neither direct method nor indirect method.

 19. An entity acquired a building, paying a portion of the purchase price in cash and issuing a mortgage note payable
to the seller for the balance. In a cash flow statement what amount is included in investing activities for the
transaction?

a. Cash payment. c. Zero.

b. Acquisition price. d. Mortgage amount.

20. When using the indirect method to derive net cash flows from operating activities,

I. An increase in inventory should be presented as a deduction from net income.

II. A decrease in accounts payable would be added to net income.

III. Depreciation is treated as an adjustment to reported net earnings because depreciation reduces reported
net earnings but does not involve an outflow of cash.

a. Statements I and II are correct. c. Statements II and III are correct.

b. Statements I and III are correct. d. Statements I, II and III are correct.

PRTC

1. “Cash flows” in the cash flow statement are

a. Inflows of cash and cash equivalents
b. Outflows of cash and cash equivalents
c. Inflows and outflows of cash
d. Inflows and outflows of cash and cash equivalents

2. Operating activities are

a. The principal revenue-producing activities of the entity and other activities that are not investing or
financing activities.
b. The acquisition and disposal of long-term assets and other investments not included in the cash
equivalents
c. Activities that result in the changes in the size and composition of the contributed equity and borrowings
of the entity.
d. Original and planned investigation undertaken with the prospect of gaining new scientific or technical
knowledge and understanding.

3. Entities are encouraged to report cash flows from operating activities using
a. The direct method, whereby major classes of gross cash receipts and gross cash payments are
disclosed.
b. The indirect method, whereby profit or loss is adjusted for the effects of transactions of a non-cash nature,
any deferrals or accruals of past or future operating cash receipts or payments, and items of income or
expense associated with investing or financing cash flows.
c. Either a or b.
d. Neither a or b.
 4. Which statement is (are) correct regarding presentation of cash flows from interest and dividends received and
paid
I. Interest paid and interest and dividends received may be classified as operating cash flows because they
enter into the determination of profit or loss.
II. Interest paid and interest and dividends received may be classified as financing cash flows and investing
cash flows respectively, because they are costs of obtaining financial resources or returns on
investments.
III. Dividends paid may be classified as a financing cash flow because they are a cost of obtaining financial
resources.
IV. Dividends paid may be classified as a component of cash flows from operating activities in order to assist
users to determine the ability of an entity to pay dividends out of operating cash flows.

a. I, II, II and IV c. I and III only

b. I, II and III only d. II and III only

5. Company uses the direct method to prepare its statement of cash flows. The company had the following cash
flows during the current year

Cash receipts from the issuance of ordinary shares P 400,000

Cash receipts from customers 200,000

Cash receipts from dividends on long-term investments 30,000

Cash receipts from repayment of loan made to another company 220,000

Cash payments for wages and other operating expenses 120,000

Cash payments for insurance 10,000

Cash payments for dividends 20,000

Cash payments for taxes 40,000

Cash payment to purchase land 80,000

The net cash provided by (used in) operating activities is

a. P60,000
b. P40,000
c. P30,000
d. (P20,000)

6. Word Corporation is preparing its statement of cash flows and has provided this information:

Net income before taxes P400,000

Depreciation on property, plant and equipment 200,000

Loss on sale of building 100,000
Interest expense 150,000
Interest payable, beginning of the year 100,000
Interest payable, end of the year 50,000
 Income taxes paid 100,000
Accounts receivable, beginning of the year 500,000
Accounts receivable, end of the year 850,000
Inventory, beginning of the year 500,000
Inventory, end of the year 400,000
Accounts payable, beginning of the year 200,000
Accounts payable, end of the year 500,000

The net cash provided by operating activities is

a. P750,000 c. P600,000
b. P700,000 d. P500,000

7. Aklan Company reported net income of P10,000,000 for the current period. Changes occurred in several balance
sheet accounts during the period as follows:

Investment in shares, carried at equity P2,500,000 increase

decreas
Premium on bonds payable 500,000
e
decreas
Accumulated depreciation, caused by major repair 1,000,000
e
Deferred tax liability 400,000 increase
In the current period statement of cash flows, the cash provided by the operating activities should be

a. P7,400,000 c. P6,400,000
b. P9,400,000 d. P7,000,000

8. Antique Corp. reported net income of P420,000 for the current period. Changes occurred in several statement of
financial position accounts as follows:

Equipment P35,000 increase

Accumulated depreciation 56,000 increase

Note payable 42,000 increase

Additional information:

 During the year, Antique sold equipment costing P35,000 with accumulated depreciation of P16,800, for a gain of
P7,000.
 In December of the current year, Antique purchased equipment costing P70,000 with P28,000 cash and a 12%
note payable of P42,000.
 Depreciation expense for the year was P72,800.

In Antique’s current period statement of cash flows, net cash used in investing activities should be

a. P2,800 c. P16,800
b. P30,800 d. P49,000
 9. Capiz Company had the following activities during the current period:
 Acquired investment in ordinary shares classified as available for sale for P3,000,000.
 Sold investment in trading securities for P4,500,000 when the carrying amount was P3,800,000.
 Acquired a P5,000,000 one-year certificate of deposit from of a bank. During the year, interest of
P400,000 was received from the bank.
 Collected dividends of P800,000 on investments in equity securities.

In the current period statement of cash flows, net cash used investing should be

a. P8,000,000 c. P3,500,000
b. P6,800,000 d. P3,000,000

10. Warner Limited had the following cash flows during a reporting period:
 Acquisition of subsidiary, net of cash flows P250,000
 Dividends paid P65,000
 Repayment of borrowings P90,000
 Interest on paid borrowings P57,000
 Proceeds from sale of plant P215,000

What is the amount of cash flows in relation to financing activities of Warner Limited for the reporting period?

a. Net cash inflow P155,000

b. Net cash inflow P212,000
c. Net cash outflow P155,000
d. Net cash outflow P212,000

Use the following information for the next five questions.

The following is a list of the items to be included in the preparation of the current year statement of cash flows for the
Norhan Company.

a) Net income P59,200

b) Payment for the purchase of building 98,000
c) Increase in accounts receivable 7,400
d) Proceeds from issuance of ordinary shares 37,100
e) Increase in accounts payable 4,500
f) Proceeds from sale of land 7,000
g) Depreciation expense 12,600
h) Payment of dividends 36,000
i) Gain on sale of land 5,300
j) Decrease in inventory 3,700
k) Payment for purchase of long-term investments 9,600
l) Amortization of discount on bonds payable 1,900
m) Proceeds from issuance of note 18,000
n) Increase in deferred taxes payable 5,000
o) Equipment acquired by finance lease 19,500
p) Decrease in salaries payable 2,300
 q) Beginning cash balance 20,300

Compute for the following:

11. Cash provided by operating activities

a. P68,100 c. P74,900
b. P89,900 d. P71,900

12. Cash used in investing activities

a. P120,100 c. P100,600
b. P107,600 d. 9,600

13. Cash provided by financing activities

a. P19,100 c. P20,600
b. P38,600 d. P1,100

14. Net decrease in cash

a. P19,600 c. P13,400
b. P 6,600 d. P 9,600

15. Cash balance, ending

a. P13,700 c. P 700
b. P10,700 d. P 6,900

Solution guide:

Item Operating Investing Financing

a
b
c
d
e
f
g
h
i
j
k
l
m
n
o
p
Net
16. Sales, P102,000; Cost of goods sold, P40,000; Wages, P31,800; Purchase of land, P8,000; Increase on accounts
receivable, P3,600; Depreciation expense, P4,000; Gain on sale of equipment, P1,400; Issuance of bonds,
P16,000 at face value; Increase in accounts payable, P5,200; Patent amortization expense, P2,600; Decrease in
inventory, P2,000; Loss on sale of land, P1,000; Decrease in wages payable, P600; Declaration and payment of
dividend, P6,800.

Net cash flows from operating activities is

a. P22,800 c. P38,000
b. P36,800 d. P33,200

17. Brett Limited had a net profit after tax of P850,000 for the financial year. Included in this profit was:
 Depreciation expense of P120,000
 Gain on sale of investments of P28,000

Also, Accounts Receivable increased by P39,000 and Inventories decreased by P12,000. The cash flow from
operating activities during the year was:

a. P785,000 c. P915,000
b. P731,000 d. P969,000

18. Marcum Corp.’s transactions for the current year included the following:
 Purchased real estate for P220,000 cash which was borrowed from a bank.
 Sold available-for-sale securities for P200,000.
 Paid dividends of P240,000.
 Issued 500 shares of common stock for P100,000.
 Purchased machinery and equipment for P50,000 cash.
 Paid P180,000 toward a bank loan.
 Reduced accounts receivable by P40,000.
 Increased accounts payable P80,000

Marcum’s net cash used in investing activities for the current year was

a. P70,000 c. P270,000
b. P20,000 d. P150,000

19. During 2017, Siquijor has the following activities related to its financial operations:

Payment for the early retirement of long-term bonds payable

P5,500,000
(carrying amount of bonds payable P5,000,000

Distribution in 2017 of cash dividend declared in 2016 3,000,000

Carrying amount of convertible preference shares converted into

2,000,000
ordinary shares

Proceeds from sale of treasury shares (cost, P2,000,000) 2,500,000

In the 2017 statement of cash flows, net cash used in financing activities should be

a. P6,000,000 c. P3,000,000
b. P8,500,000 d. P6,500,000
 20. Lange Co. provided the following information on selected transactions during the current year:

Purchase of land by issuing bonds P200,000

Proceeds from issuing bonds 300,000
Purchases of inventory 650,000
Purchases of treasury shares 90,000
Loans made to affiliated corporations 250,000
Dividends paid to preference shareholders 80,000
Proceeds from issuing preference shares 240,000
Proceeds from sale of equipment 50,000

The net cash provided by financing activities for the current year is

a. P370,000 c. P570,000
b. P460,000 d. P120,000

SMARTS
1. A statement of cash flows typically would not disclose the effects of
a. Capital stock issued at an amount greater than par value
b. Stock dividends declared
c. Cash dividends paid
d. A purchase and immediate retirement of treasury stock

2. Interest and dividends received

a. Are cash inflows from operating activities
b. Are cash inflows from financing activities
c. Could be classified as operating or financing cash flows
d. Could be classified as operating or investing cash flows

3. The primary purpose of a statement of cash flows is to provide relevant information about
a. Differences between net income and associated cash receipts and disbursements.
b. An enterprise ability to generate future positive net cash flows.
c. The cash receipts and cash disbursements of an enterprise during a period.
d. An enterprise’s ability to meet cash operating needs.

4. Vance Co.’s prepaid insurance was P30,000 at December 31, 2017 and P15,000 at December 31, 2016.
Insurance expense was P12,000 for 2017 and P9,000 for 2016.

What amount of cash disbursements for insurance would be reported in Vance’s 2017 net cash provided by the
operating activities presented on a direct basis?

a. P33,000 c. P18,000
b. P27,000 d. P12,000

5. The following information selected on cash transactions for 2017 has been provided by Raymond Company:

Proceeds from sale of land P400,000

Proceeds from long-term borrowings 1,000,000
Purchases of plant assets 360,000
Purchases of inventories 1,700,000
Proceeds from sale of Raymond common stock 600,000
 What is the cash provided (used) by investing activities for the year ended December 31, 2017, as a result of the
above information?

a. P40,000 c. P400,000
b. P640,000 d. P2,000,000

6. In preparing its cash flow statement for the year ended December 31, 2016, Reve Co. collected the following
data:

Gain on sale of equipment (P6,000)

Proceeds from sale of equipment 10,000
Purchase of ABC Inc., bonds (par value P200,000) (180,000)
Amortization of bond discount 2,000
Dividends declared (45,000)
Dividends paid (38,000)
Proceeds from sale of treasury shares (carrying amount
75,000
P65,000)

What amount should be Reve Co. report as net cash used in investing activities?

a. P170,000 c. P188,000
b. P176,000 d. P194,000

7. Fara Co. reported bonds payable of P47,000 at December 31, 2016, and P50,000 at December 31, 2017. During
2017, Fara issued P20,000 of bonds payable in exchange for equipment. There was no amortization of bond
premium or discount during the year.

What is the 2017 cash flows for redemption of bonds payable?

a. P3,000 c. P20,000
b. P17,000 d. P28,000

8. The balance in retained earnings at December 31, 2016 was P810,000 and at December 31, 2017 was P654,000.
Net income for 2017 was P563,000. A stock dividend was declared and distributed which increased common
stock P225,000 and paid-in capital P125,000. A cash dividend was declared and paid.

The amount of the cash dividend was

a. P279,000 c. P494,000
b. P369,000 d. P719,000

9. The following information pertains to Thanks Trading during the current year:

Net income during the year P1,000,000

Decrease in trade receivables 500,000
Decrease in trade liabilities 250,000
Investment income from associate 200,000
Loss on sale of machinery 50,000
Increase in deferred tax asset 46,000
Bad debts expense 20,000
 Decrease in prepayments 15,000
Unrealized loss in trading securities 14,000
Gain on redemption of bonds 10,000
Estimated warranty expense 5,000
Amortization of discount on bonds payable 2,000

Determine the net cash from operating activities using the indirect method.
a. P1,128,000 c. P1,132,000
b. P1,630,000 d. P1,100,000

10. The following information pertains to Grains Trading during the current year:

Cash balance, January 1 P900,000

Dividend received 250,000
Dividend paid 500,000
Cash received from customers 4,500,000
Proceeds from issuing share capital 750,000
Interest received 100,000
Proceeds from sale of long-term investments 1,000,000
Payment to suppliers and employees. 3,000,000
Interest paid on long-term debt 200,000
Income taxes 150,000

Determine the net cash from operating activities using the direct method.

a. P1,500,000 c. P1,350,000
b. P1,650,000 d. P1,000,000

11. In a statement of cash flows, which of the following would increase reprted cash flows from operating activities
using the direct method? (Ignore income tax considerations.)

a. Dividends received from investments

b. Gain on sale of equipment
c. Gain on early retirement of bonds
d. Change from straight-line to accelerated depreciation

12. Cash receipts from customers for the sale of goods are cash flows from

a. Operating activities c. Operating or financing activities

b. Investing activities d. Financing activities

13. A company acquired a building, paying a portion of the purchase price in cash and issuing a mortgage note
payable to the seller for the balance. In a statement of cash flows, what amount is included in investing activities
for the above transaction?

a. Cash payment b. Acquisition price c. Zero d. Mortgage amount

14. Expenditures for research are classified under

a. Operating activities c. Operating or financing activities

 b. Investing activities d. Financing activities

15. In a statement of cash flows, the cash flows from investing activities section should report

a. The issuance of common stock in exchange for a factory building

b. Stock dividends received

c. The assignment of accounts receivable

d. A major repair to machinery charged to accumulated depreciation

16. The most useful information in predicting future cash flows is

a. Information about current cash flows

b. Current earnings based on accrual accounting

c. Information regarding the accounting policies used

d. Information regarding the results obtained by using a wide variety of accounting policies

17. An entity (other than a financial institution) receives dividends from its investment in shares. How should it
disclose the dividends received in the cash flow statement prepared under PAS 7?

a. Operating cash inflow

b. Either as operating cash inflow or as investing cash inflow

c. Either as operating cash inflow or as financing cash inflow

d. As an adjustment in the “operating activities” section of the cash flow because it is included in the net income
for the year and as a cash inflow in the “financing activities” section of the cash flow statement.

18. An increase in inventory balance would be reported in a statement of cash flows using the indirect method
(reconciliation method) as a(n)

a. Addition to net income in arriving at net cash flow from operating activities

b. Deduction from net income in arriving at net cash flow from operating activities

c. Cash outflow from investing activities

d. Cash outflow from financing activities

19. A statement of cash flows typically would not disclose the effects of

a. Capital stock issued at an amount greater than par value

b. Stock dividends declared

c. Cash dividends paid

d. A purchase and immediate retirement of treasury stock

20. Payment of non-refundable purchase taxes on the purchase of property, plant and equipment are allocated as
cash flows from

a. Operating activities c. Operating or financing activities

b. Investing activities d. Financing activities