Chapter 17
Statement of cash flows
Problem 17-1
Mountain Company reported the following income statement for the year ended
December 31, 2019:
Sales
Cost of goods sold:
Inventory – January 1
Purchases
Goods available for sale
Inventory – December 31
Gross income
Expenses:
Salaries
Rent
Insurance
Doubtful accounts expense
Other expenses
Depreciation
4,500,000
750,000
2,850,000
3,600,000
( 600,000)
3,000,000
1,500,000
600,000
250,000
20,000
30,000
100,000
50,000
Net income
1,050,000
450,000
Additional information
December 31
Accounts receivable
Allowance for doubtful accounts
Inventory
Prepaid insurance
Accounts payable
Accrued salaries payable
Equipment
Accumulated depreciation
540,000
40,000
600,000
15,000
280,000
50,000
1,200,000
290,000
January 1
440,000
20,000
750,000
10,000
160,000
80,000
1,200,000
240,000
During the year, the entity recognized doubtful accounts expense of P30,000 and wrote
off uncollectible accounts of P10,000.
Required:
Determine the cash flow from operating activities using the direct method and indirect
method.
Answer:
Accounts receivable – January 1
Add: Sales
Total
Less: Accounts receivable – December 31
Writeoff
Collections from customers
Accounts payable – January 1
Purchases
Total
Less: Accounts payable – December 31
Payment to merchandise creditors
440,000
4,500,000
4,940,000
540,000
10,000
550,000
4,390,000
160,000
2,850,000
3,010,000
280,000
2,730,000
Salaries
Add: Accrued salaries – January 1
Total
Less: Accrued salaries – December 31
Payment for salaries
600,000
80,000
680,000
50,000
630,000
Insurance
Add: Prepaid insurance – December 31
Total
Less: Prepaid insurance – January 1
Payment for insurance
20,000
15,000
35,000
10,000
25,000
Direct method
Cash received from customers
Cash payment to creditors
Salaries paid
Insurance paid
Rent paid
Other expenses paid
Net cash provided by operating activities
4,390,000
(2,730,000)
( 630,000)
( 25,000)
( 250,000)
( 100,000)
655,000
Indirect method
Net income
Increase in net accounts receivable
Decrease in inventory
(
450,000
80,000)
150,000
Increase in prepaid insurance
Increase in accounts payable
Decrease in accrued salaries payable
Depreciation
Net cash provided by operating activities
(
5,000)
120,000
( 30,000)
50,000
655,000
Problem 17-2
Hill Company provided the following comparative statement of financial position.
Assets
Cash and cash equivalents
Accounts receivable
Inventory
Prepaid expenses
Property, plant and equipment
Accumulated depreciation
2019
2018
750,000
1,750,000
2,550,000
100,000
5,300,000
(1,150,000)
950,000
1,100,000
1,800,000
150,000
4,300,000
( 800,000)
9,300,000
7,500,000
1,250,000
50,000
4,750,000
3,250,000
1,000,000
200,000
4,250,000
2,050,000
9,300,000
7,500,000
Liabilities and equity
Accounts payable
Accrued expenses
Share capital
Retained earnings
Additional information
1. The statement of retained earnings for 2019 showed net income of P1,500,000 and
cash dividend paid of P300,000.
2. During the year, the entity purchased equipment for cash and issued share capital
for cash.
Required:
Prepare a statement of cash flows for the current year using the indirect method.
Answer:
Hill Company
Statement of Cash Flows
December 31, 2019
Cash flow from operating activities:
Net income
Increase in accounts receivable
Increase in inventory
Decrease in prepaid expenses
Increase in accounts payable
Decrease in accrued expenses
Depreciation
Cash flow from investing activities:
Purchase of equipment
Cash flow from financing activities:
Issue of share capital
Payment of cash dividend
Decrease in cash and cash equivalents
Cash and cash equivalents – January 1
Cash and cash equivalent – December 31
1,500,000
( 650,000)
( 750,000)
50,000
250,000
( 150,000)
350,000
600,000
(1,000,000)
500,000
( 300,000)
200,000
( 200,000)
950,000
750,000
Problem 17-3
Sandy Company reported the following comparative statement of financial position at
year-end.
Assets
Cash and cash equivalents
Accounts receivable
Inventory
Prepaid expenses
Property, plant and equipment
Accumulated depreciation
2019
2018
120,000
370,000
1,090,000
80,000
4,300,000
( 840,000)
150,000
210,000
860,000
90,000
3,620,000
( 720,000)
5,120,000
4,210,000
400,000
70,000
35,000
345,000
40,000
15,000
Liabilities and equity
Accounts payable
Salaries payable
Income tax payable
Accrued interest payable
Bonds payable
Share capital
Retained earnings
Treasury shares
5,000
600,000
3,050,000
1,100,000
( 140,000)
5,120,000
3,050,000
760,000
4,210,000
The income statement for the year ended December 31, 2019 showed the following:
Sales
Cost of goods sold:
Inventory – January 1
Purchases
Goods available for sales
Inventory – December 31
4,450,000
860,000
2,630,000
3,490,000
(1,090,000)
2,400,000
Gross income
Gain on sales of equipment
2,050,000
60,000
Total income
Expenses:
Salaries
Insurance
Rent
Depreciation
Bad debt writeoff
Interest expense
2,110,000
640,000
100,000
350,000
260,000
20,000
40,000
Income before tax
Income tax
Net income
1,410,000
700,000
200,000
500,000
Additional information
1. Cash dividends of P160,000 were declared and paid during the year.
2. Equipment costing P190,000 and with accumulated depreciation of P140,000 was
sold for P110,000 cash.
3. New equipment was purchased for cash.
4. Bonds payable were issued for cash at the face value of P600,000.
5. The treasury shares were purchased at cost P140,000.
Required:
a. Prepare a statement of cash flows using the direct method.
b. Compute the cash flow operating activities using the indirect method.
Answer:
Sandy Company
Statement of Cash Flows
December 31, 2019
Cash flows from operating activities:
Collections from customers
Payments to creditors
Salaries paid
Insurance paid
Rent paid
Cash generated from operations
Interest paid
Income tax paid
Net cash provided by operating activities
Cash flow from investing activities:
Sale of equipment
Purchase of equipment
Cash flow from financing activities:
Issue of bonds payable
Payment of cash dividend
Payment of treasury shares
Decrease in cash and cash equivalents
Cash and cash equivalents – January 1
Cash and cash equivalents – December 31
4,270,000
(2,575,000)
( 610,000)
( 90,000)
( 350,000)
645,000
( 35,000)
( 180,000)
430,000
100,000
( 870,000) ( 760,000)
600,000
( 160,000)
( 140,000)
(
300,000
30,000)
150,000
120,000
Indirect method
Net income
Increase in net accounts receivable
Increase in inventory
Decrease in prepaid insurance
Increase in accounts payable
Decrease in salaries payable
Increase in income tax payable
Increase in accrued interest payable
Depreciation
Gain on sale of equipment
Net cash provided by operations
500,000
( 160,000)
( 230,000)
10,000
55,000
30,000
20,000
5,000
260,000
( 60,000)
430,000
Problem 17-4
Forest Company provided the following information for the preparation of a statement of
cash flows for the current year:
2019
Cash and cash equivalents
Trading securities
Accounts receivable, net of allowance
Inventory
Property, plant and equipment (net)
Goodwill
Discount on bonds payable
Accounts payable
Accrued expenses
Bonds payable
Preference share capital, P100 par, each share
Convertible into two ordinary shares
Ordinary share capital, P20 par
Share premium
Retained earnings
2018
603,000
300,000
600,000
900,000
2,000,000
200,000
72,000
300,000
200,000
520,000
840,000
2,100,000
200,000
100,000
4,675,000
4,260,000
490,000
310,000
800,000
800,000
210,000
1,000,000
400,000
820,000
500,000
1,355,000
500,000
700,000
400,000
650,000
4,675,000
4,260,000
Additional information
1. Net income for the current year was P1,705,000.
2. Cash dividend paid during the year totaled P1,000,000.
3. The bonds mature on January 1, 2024. On December 31, 2019 bonds with face of
P200,000 were retired at 105.
4. The entity sold 4,000 ordinary shares at P30 per share.
5. The decrease in preference share capital resulted from the exercise of the
conversion privilege by preference shareholders.
6. The increase in trading securities is due to increase in market value during the year.
Required:
Prepare a statement of cash flows for the current year.
Answer:
Requirements
Entries
1. Profit and loss
Retained earnings
1,705,000
2. Retained earnings
Cash
1,000,000
1,705,000
1,000,000
3. Interest expense (100,000/10)
Discount on bonds payable
10,000
Bonds payable
Loss on retirement
Cash (200,000 x 105)
Discount on bonds payable
(90,000 x 200 / 1,000)
200,000
28,000
10,000
210,000
18,000
4. Cash (4,000 x 30)
Ordinary share capital (4,000 x 20)
Share premium
120,000
5. Preference share capital (1,000 x 100)
Ordinary share capital (2,000 x 20)
Share premium
100,000
6. Trading securities
Unrealized gain
100,000
80,000
40,000
40,000
60,000
100,000
7. Accounts receivable
Sales
80,000
8. Inventory
Cost of sales
60,000
9. Depreciation
Accumulated depreciation
80,000
60,000
100,000
100,000
10. Accounts payable
Cash
310,000
11. Expenses
Accrued expenses
100,000
310,000
100,000
Operating
1. Net income
1,705,000
2. Cash dividend
3. Amortization of discount on bonds payable
10,000
Retirement of bonds payable
Loss on retirement
28,000
4. Issuance of ordinary share capital
5. Conversion of preference share into ordinary share – no cash effect
6. Unrealized gain
( 100,000)
7. Increase in accounts receivable
( 80,000)
8. Increase in inventory
( 60,000)
9. Depreciation
100,000
10. Decrease in accounts payable
( 310,000)
11. Increase in accrued expenses
100,000
Net cash provided (used)
1,393,000
Financing
(1,000,000)
( 210,000)
120,000
(1,090,000)
Forest Company
Statement of Cash Flows
December 31, 2019
Cash flow from operating activities:
Net income
Amortization of discount
Loss on retirement
Increase in accounts receivable
Increase in inventory
Depreciation
Unrealized gain
Decrease in accounts payable
Increase in accrued expenses
Cash flow from financing activities:
Issue of ordinary share capital
Payment of cash dividend
Bond retirement
Increase in cash and cash equivalents
Add: Cash and cash equivalents – January 1
Cash and cash equivalents – December 31
1,705,000
10,000
28,000
( 80,000)
( 60,000)
100,000
( 100,000)
( 310,000)
100,000
1,393,000
120,000
(1,000,000)
( 210,000) (1,090,000)
303,000
300,000
603,000
Problem 17-5
Fearsome Company showed the following comparative statement of financial position:
2019
Cash and cash equivalents
Accounts receivable, net of allowance
Inventory
Investment in Hall Company at equity
Land
Property, plant and equipment
Accumulated depreciation
Goodwill
Accounts payable
Note payable – long term
Bonds payable
Share capital, P100 par
Share premium
Retained earnings
Treasury shares, at cost
2018
2,350,000
600,000
1,000,000
2,200,000
2,000,000
5,000,000
( 1,050,000)
400,000
350,000
700,000
850,000
2,000,000
1,500,000
4,000,000
( 800,000)
400,000
12,500,000
9,000,000
600,000
500,000
1,600,000
5,250,000
2,700,000
1,850,000
-
550,000
2,100,000
4,000,000
1,750,000
1,300,000
( 700,000)
12,500,000
9,000,000
Additional information
1. The net income for the current year was P3,050,000.
2. Cash dividend paid amounted to P2,500,000.
3. The entity sold equipment costing P200,000, with carrying amount of P50,000, for
P70,000 cash.
4. The entity issued 10,000 shares of capital for P150 per share cash.
5. The entity sold all of its treasury shares for P900,000 cash.
6. Individuals holding P500,000 face value bonds exercised their conversion privilege.
Each of the 500 bonds was converted into 5 shares of capital.
7. The entity purchased equipment for P1,200,000.
8. Land with a fair value of P500,000 was purchased through the issuance of a long
term note.
Required:
Prepare a statement of cash flows for the current year.
Answer:
Requirements
Entries
1. Profit and loss
Retained earnings
3,050,000
2. Retained earnings
Cash
2,500,000
3. Cash
Accumulated depreciation
Equipment
Gain on sale of equipment
4. Cash (10,000 x 150)
Share capital
Share premium
5. Cash
3,050,000
2,500,000
70,000
150,000
200,000
20,000
1,500,000
1,000,000
500,000
900,000
Treasury share
Share premium
6. Bonds payable
Share capital (2,500 x 100)
Share premium
7. Equipment
Cash
8. Land
700,000
200,000
500,000
250,000
250,000
1,200,000
1,200,000
500,000
Note payable – long term
9. Cash
500,000
100,000
Accounts receivable
100,000
10. Inventory
Cost of sales
150,000
11. Investment in Hall Company
Investment income
200,000
150,000
200,000
12. Purchases
Accounts payable
50,000
50,000
Operating
1. Net income
2. Cash dividend
3. Sale of equipment
Gain on sale of equipment
Depreciation
4. Issuance of share capital
5. Sale of treasury shares
6. Conversion of bonds payable into
Ordinary share- no cash effect
7. Purchase of equipment
8. Purchase of land by issuing a note
- No cash effect
9. Decrease in accounts receivable
10. Increase in inventory
11. Investment income
12. Increase in accounts payable
Net cash provided (used)
Investing
Financing
3,050,000
(2,500,000)
70,000
(
20,000)
400,000
1,500,000
900,000
(1,200,000)
100,000
( 150,000)
( 200,000)
50,000
3,230,000
(1,130,000) ( 100,000)
Fearsome Company
Statement of Cash Flows
December 31, 2019
Cash flow from operating activities:
Net income
Gain on sale of equipment
Depreciation
Decrease in net accounts receivable
Increase in inventory
Investment income
Increase in accounts payable
Cash flow from investing activities:
Sale of equipment
Purchase of equipment
Cash flow from financing activities:
Issue of share capital
Sale of treasury shares
Payment of cash dividend
Increase in cash and cash equivalents
Add: Cash and cash equivalents – January 1
Cash and cash equivalents – December 31
3,050,000
( 20,000)
400,000
100,000
( 150,000)
( 200,000)
50,000
3,230,000
70,000
(1,200,000) (1,130,000)
1,500,000
900,000
(2,500,000) ( 100,000)
2,000,000
350,000
2,350,000
Problem 17-6
Kenwood Company provided the following comparative statement of financial position:
2019
Cash
Accounts receivable, net of allowance
Inventory
Land
Property, plant and equipment
Accumulated depreciation
Patent
Accounts payable
Accrued expense
Bonds payable
Share capital, P5 par
Share premium
Retained earnings
Additional information
500,000
1,050,000
1,300,000
1,625,000
2,900,000
( 450,000)
150,000
1,350,000
1,300,000
1,000,000
1,250,000
1,165,000
1,010,000
2018
450,000
700,000
1,200,000
1,000,000
3,165,000
( 500,000)
165,000
1,000,000
1,050,000
1,500,000
1,050,000
850,000
730,000
1. The net income for the current year was P1,095,000.
2. On February 2, the entity issued a 10% stock dividend to shareholders of record on
January 15. The market price per share was P15.
3. On March 1, the entity issued 19,000 shares for land. The land had a fair value of
P200,000.
4. The entity purchased long term bonds with face of P500,000. A gain on retirement of
bonds was reported in the income statement in the amount of P50,000.
5. The entity sold equipment costing P265,000, with carrying amount of P115,000, for
P95,000 cash.
6. On September 30, the entity declared and paid a P2.00 per share cash dividend to
shareholders of record on August 1.
7. The entity purchased land for P425,000 cash.
Required:
Prepare a statement of cash flows for the current year.
Answer:
Requirements
Entries
1. Profit and loss
Retained earnings
1,095,000
1,095,000
2. Retained earnings (21,000 x 15)
Share capital (21,000 x 5)
Share premium
315,000
3. Land
200,000
105,000
210,000
Share capital (19,000 x 5)
Share premium
4. Bonds payable
Cash
Gain on bond retirement
5. Cash
95,000
105,000
500,000
450,000
50,000
95,000
Accumulated depreciation
Loss on sale of equipment
Equipment
150,000
20,000
265,000
6. Retained earnings (250,000 x 2)
Cash
500,000
7. Land
425,000
500,000
Cash
425,000
8. Accounts receivable
Sales
350,000
9. Inventory
Cost of sales
100,000
10. Depreciation (450,000 – 350,000)
Accumulated depreciation
100,000
11. Amortization of patent
Patent
350,000
100,000
100,000
15,000
15,000
12. Purchases
Accounts payable
350,000
13. Expenses
Accrued expenses
250,000
350,000
250,000
Operating
1. Net income
2. Stock dividend – no cash effect
3. Issuance of share capital for land –
No cash effect
4. Retirement of bonds payable
Gain on bond retirement
5. Sale of equipment
Loss on sale of equipment
6. Cash dividend
7. Purchase of land
8. Increase in accounts receivable
9. Increase in inventory
10. Depreciation
11. Amortization of patent
12. Increase in accounts payable
13. Increase in accrued expenses
Net cash provided (used)
Investing
Financing
1,095,000
( 450,000)
(
50,000)
95,000
20,000
( 500,000)
( 425,000)
( 350,000)
( 100,000)
100,000
15,000
350,000
250,000
1,330,000
( 330,000)
( 950,000)
1,095,000
( 50,000)
20,000
( 350,000)
( 100,000)
100,000
15,000
350,000
250,000
1,330,000
95,000
( 425,000)
( 330,000)
Kenwood Company
Statement of Cash Flow
December 31, 2019
Cash flow from operating activities:
Net income
Gain on bond retirement
Loss on sale of equipment
Increase in net accounts receivable
Increase in inventory
Depreciation
Amortization of patent
Increase in accounts payable
Increase in accrued expenses
Cash flow from investing activities:
Sale of equipment
Purchase of land
Cash flow from financing activities:
Retirement of bonds payable
Cash dividend
Increase in cash and cash equivalents
Add: cash and cash equivalents – January 1
Cash and cash equivalents – December 31
( 450,000)
( 500,000)
( 950,000)
50,000
450,000
500,000
Problem 17-7
Sandra Company provided the following comparative statement of financial position.
2019
Cash and cash equivalents
Accounts receivable, net of allowance
Inventory
Investment in Word Company, at equity
Property, plant and equipment
Accumulated depreciation
Patent, net
Accounts payable and accrued liabilities
Note payable, long-term debt
Deferred tax liability
Share capital, P100 par value
Share premium
Retained earnings
640,000
550,000
810,000
400,000
1,145,000
( 345,000)
100,000
815,000
600,000
220,000
850,000
230,000
585,000
2018
300,000
515,000
890,000
390,000
1,070,000
( 280,000)
350,000
950,000
900,000
200,000
650,000
170,000
365,000
1. The net income for the current year is P305,000.
2. The entity paid a cash dividend of P85,000 on October 26.
3. On January 2, the entity sold equipment costing P45,000, with a carrying amount of
P28,000 for P18,000.
4. On April 15, the entity issued 2,000 shares of capital for cash at P130 per share.
5. On July 1, the entity purchased equipment for P120,000 cash.
6. The entity acquired a 20% interest in Word Company at the end of 2018. There was
no goodwill attributable to the investment. The investee reported net income of
P150,000 for 2019 and paid cash dividend of P100,000 on December 31, 2019.
Required:
Prepare a statement of cash flows for the current year.
Answer:
Requirements
Entries
1. Profit and loss
Retained earnings
Retained earnings
Cash
2. Cash
Accumulated depreciation
Loss on sale of equipment
Equipment
3. Cash
305,000
305,000
85,000
85,000
18,000
17,000
10,000
45,000
260,000
Share capital
Share premium
4. Equipment
Cash
5. Investment in Word Company
Investment income
Cash
200,000
60,000
120,000
120,000
30,000
30,000
20,000
Investment in Word Company
20,000
6. Accounts receivable
Sales
35,000
7. Cost of sales
Inventory
80,000
8. Depreciation
Accumulated depreciation
82,000
35,000
80,000
82,000
Accumulated – 2019
Accumulated – 2018 (280,000 – 17,000)
Depreciation for 2019
9. Amortization
Patent
345,000
263,000
82,000
250,000
250,000
10. Accounts payable
Cash
135,000
11. Note payable – long term
Cash
300,000
135,000
300,000
12. Income tax
Deferred tax liability
20,000
20,000
Operating
1. Net income
Cash dividend
2. Sale of equipment
Loss on sale of equipment
3. Issue of share capital
4. Purchase of equipment
5. Investment income
Cash dividend received from equity
Investee
6. Increase in net accounts receivable
7. Decrease in inventory
8. Depreciation
9. Amortization of patent
10. Decrease in accounts payable
11. Payment of long term note
12. Increase in deferred tax liability
Net cash provided (used)
Investing
Financing
305,000
( 85,000)
18,000
10,000
260,000
(120,000)
( 30,000)
20,000
( 35,000)
80,000
82,000
250,000
(135,000)
(300,000)
20,000
567,000
(102,000)
(125,000)
305,000
10,000
( 30,000)
20,000
( 35,000)
80,000
82,000
250,000
(135,000)
20,000
567,000
Sandra Company
Statement of Cash Flows
December 31, 2019
Cash flow from operating activities:
Net income
Loss on sale of equipment
Investment income
Cash dividend received from equity investee
Increase in accounts receivable
Decrease in inventory
Depreciation
Amortization of patent
Decrease in accounts payable
Increase in deferred tax liability
Cash flow from investing activities:
Sale of equipment
Purchase of equipment
Cash flow from financing activities:
Cash dividend
Issue of share capital
Payment of long term note
Increase in cash and cash equivalents
Cash and cash equivalents – January 1
Cash and cash equivalents – December 31
18,000
(120,000)
( 85,000)
260,000
(300,000)
(102,000)
(125,000)
340,000
300,000
640,000
Problem 17-8
On December 31, 2019, Kale Company had the following balances in the bank
accounts with First Bank:
Checking account #101
Checking account #201
Time deposit
Commercial papers
90-day treasury bill, due February 28, 2020
180-day treasury bill, due March 15, 2020
1,750,000
( 100,000)
250,000
1,000,000
500,000
800,000
On December 31, 2019, what amount should be reported as cash and cash equivalent
a.
b.
c.
d.
3,400,000
2,000,000
2,400,000
3,200,000
Answer:
Checking account #101
Checking account #201
Time deposit
90-day treasury bill, due February 28, 2020
Total cash and cash equivalents
1,750,000
( 100,000)
250,000
500,000
3,400,000
Problem 17-9
Oakwood Company provided the following data for the current year:
Cash balance, beginning of year
Cash flow from financing activities
Total shareholders’ equity, end of year
Cash flow from operating activities
Cash flow from investing activities
Total shareholders’ equity, beginning of year
1,300,000
1,000,000
2,300,000
400,000
(1,500,000)
2,000,000
What is the cash balance at the end of current year?
a.
b.
c.
d.
1,200,000
1,600,000
1,400,000
1,700,000
Answer:
Cash balance, beginning of year
Cash flow from financing activities
Cash flow from operating activities
Cash flow from investing activities
Cash balance – ending
1,300,000
1,000,000
400,000
(1,500,000)
1,200,000
Problem 17-10
Seawall Company provided the following data for the preparation of the statement of
cash flows for the current year:
Dividends declared and paid
Cash flow from investing activities
Cash flow from financing activities
800,000
(2,500,000)
( 800,000)
December 31
Cash
Other assets
Liabilities
Share capital
Retained earnings
2,100,000
21,000,000
10,500,000
2,000,000
10,600,000
January 1
1,200,000
22,700,000
11,700,000
2,000,000
10,200,000
What amount should be reported as cash flow from operating activities?
a.
b.
c.
d.
4,200,000
2,400,000
4,500,000
5,400,000
Answer:
Cash – January 1
Cash flow from operating activities (squeeze)
Cash flow from investing activities
Cash flow from financing activities
Cash – December 31
1,200,000
4,200,000
(2,500,000)
( 800,000)
2,100,000
Problem 17-11
Santana Company provided the following information for the current year:
December 31
Cash
Retained earnings
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Dividends declared and paid
Net income
1,500,000
7,000,000
?
(4,800,000)
1,800,000
2,000,000
3,600,000
January 1
1,000,000
5,400,000
What amount should be reported as cash flow from operating activities?
a.
b.
c.
d.
3,500,000
2,500,000
4,500,000
3,600,000
Answer:
Cash – January 1
Cash flow from operating activities (squeeze)
Cash flow from investing activities
Cash flow from financing activities
Cash – December 31
1,000,000
3,500,000
(4,800,000)
1,800,000
1,500,000
Problem 17-12
Moon Company reported net income of P5,000,000 for the current year. Depreciation
expense was P1,900,000.
The following working capital accounts changed:
Accounts receivable
Nontrading equity investment
Inventory
Nontrade note payable
Accounts payable
1,100,000 increase
1,600,000 increase
730,000 increase
1,500,000 increase
1,220,000 increase
Under the indirect method, what net amount of adjustments is required to reconcile net
income to net cash provided by operating activities?
a. 4,950,000
b. 1,050,000
c. 1,290,000
d. 310,000
Answer:
Depreciation expense
Increase in accounts receivable
Increase in inventory
Increase in accounts payable
Adjustment to reconcile net income to net cash provided
By operating activities
1,900,000
(1,100,000)
( 730,000)
1,220,000
1,290,000
Problem 17-13
Kresley Company reported net income of P750,000 for the current year:
The entity provided the following account balances for the preparation of statement of
cash flows for the current year:
Accounts receivable
Allowance for uncollectible accounts
Prepaid rent expense
Accounts payable
January 1
December 31
115,000
4,000
62,000
97,000
145,000
5,000
41,000
112,000
What is the net cash provided by operating activities for the current year?
a.
b.
c.
d.
727,000
743,000
755,000
757,000
Answer:
Net income
Increase in net accounts receivable (140,000 – 111,000)
Decrease in prepaid rent
Increase in accounts payable
Cash provided by operating activities
750,000
( 29,000)
21,000
15,000
757,000
Problem 17-14
Kentucky Company reported net income of P1,500,000 for the current year:
The entity provided the following changes in several accounts during the current year.
Investment in Videogold Company share carried
On the equity basis
Accumulated depreciation, caused by major
Repair to project equipment
Premium on bonds payable
Deferred tax liability
55,000 increase
21,000 decrease
14,000 decrease
18,000 increase
In the statement of cash flows, what is the net cash provided by operating activities?
a.
b.
c.
d.
1,504,000
1,483,000
1,449,000
1,428,000
Answer:
Net income
Increase in investment carried on the equity
Amortization of premium on bonds payable
Increase in deferred tax liability
Cash provided by operating activities
1,500,000
( 55,000)
( 14,000)
18,000
1,449,000
Problem 17-15
Albay Company provided the following information:
Accounts receivable, January 1, net of allowance
Of P100,000
Accounts receivable, December 31, net of allowance
Of P300,000
Sales for the current year – all on credit
Uncollectible accounts written off during the year
Recovery of accounts written off
Bad debt expense for the year
Cash expenses for the year
Net income for the year
1,200,000
1,600,000
8,000,000
70,000
20,000
250,000
5,250,000
2,500,000
What is the net cash flow from operating activities?
a.
b.
c.
d.
2,100,000
2,350,000
2,080,000
2,150,000
Answer:
Net income
Increase in accounts payable
Net cash provided – operating
2,500,000
( 400,000)
2,100,000
Problem 17-16
Balcktown Company reported the following account balances:
Accounts payable
Inventory
Accounts receivable
Prepaid expenses
December 31
January 1
500,000
300,000
800,000
400,000
650,000
250,000
900,000
600,000

All purchases of inventory were on account.

Depreciation expense of P900,000 was recognized.

Equipment was sold during the year and a gain of P300,000 was recognized
The entity provided the following cash flow information:
Cash collected from customers
Cash paid for inventory
Cash paid for other expenses
Cash flow from operations
9,500,000
(4,100,000)
(1,400,000)
4,000,000
What is the net income for the current year?
a.
b.
c.
d.
3,300,000
3,400,000
3,000,000
3,900,000
Answer:
Net income (squeeze)
Decrease in accounts payable
Increase in inventory
Decrease in accounts receivable
Decrease in prepaid expenses
Depreciation
Gain on sale of equipment
Cash flow from operations
3,300,000
( 150,000)
( 50,000)
100,000
200,000
900,000
( 300,000)
4,000,000
Problem 17-17
Rumulus Company reported the following information in the financial statements for the
current year:
Capital expenditures
Finance lease payments
Income taxes paid
Dividends paid
Net interest payments
1,000,000
125,000
325,000
200,000
220,000
What total amount should be reported as supplemental disclosures in the statement of
cash flows prepared using the indirect method?
a. 1,125,000
b. 1,870,000
c. 545,000
d. 745,000
Answer:
Income taxes paid
Net interest payment
Total amount to be disclosed
325,000
220,000
545,000
Problem 17-18
Stone Company provided the following information at year-end:
Accounts receivable
Inventory
Accounts payable
Accrued expenses
2019
2018
620,000
1,960,000
380,000
500,000
680,000
1,840,000
520,000
340,000
The income statement for the current year showed:
Net income
Depreciation
Amortization of patent
Gain on sale of land
2,120,000
240,000
80,000
200,000
What amount should be reported as net cash provided by operating activities?
a.
b.
c.
d.
2,200,000
2,400,000
2,440,000
2,600,000
Answer:
Net income
Decrease in accounts receivable
Increase in inventory
Decrease in accounts payable
Increase in accrued expenses
Deprecation
Amortization of patent
Gain on sale of land
Cash provided by operating activities
2,120,000
60,000
( 120,000)
( 140,000)
160,000
240,000
80,000
( 200,000)
2,200,000
Problem 17-19
Brown Company reported the following information for the current year:
Sales
Cost of goods sold
Distribution costs
Administrative expenses
Depreciation
Interest expense
Income tax expense
2,800,000
1,000,000
400,000
350,000
250,000
80,000
280,000
All sales were made for cash and all expenses other than depreciation and bond
premium amortization of P20,000 were paid in cash. All current assets and current
liabilities remained unchanged.
What is the net cash provided by operating activities for the current year?
a.
b.
c.
d.
440,000
690,000
670,000
710,000
Answer:
Sales
Cost of goods sold
Distribution costs
Administrative expenses
Interest expense
Income tax expense
Amortization of premium bonds payable
Cash provided by operating activities
2,800,000
(1,000,000)
( 400,000)
( 350,000)
( 80,000)
( 280,000)
( 20,000)
670,000
Problem 17-20
Matthew Company provided the following information for the current year:
Purchase of inventory
Purchase of land, with the vendor financing P1,000,000
For 2 years
Purchase of plant for cash
Sale of plant:
Carrying amount
Cash proceeds
Buyback of ordinary shares
1,950,000
3,500,000
2,500,000
500,000
400,000
700,000
What amount of investing net cash outflows should be reported in the statement of cash
flows for the current year?
a.
b.
c.
d.
5,600,000
4,600,000
6,550,000
5,300,000
Answer:
Purchase of land
Vendor financing
Cash payment
Purchase of plant for cash
Cash proceeds
Net cash outflows
(3,500,000)
1,000,000
(2,500,000)
(2,500,000)
400,000
(4,600,000)
Problem 17-21
Nellie Company provided the following information at the end of each year:
Borrowings
Share capital
Retained earnings
2019
2018
2,500,000
3,500,000
950,000
800,000
2,000,000
750,000
Borrowings of P300,000 were repaid during 2019 and new borrowings include P200,000
vendor financing arising on the acquisition of a property.
The movement in retained earnings comprised profit for 2019 of P900,000, net of
dividends of P700,000. The movement in share capital arose from issuance of share
capital for cash during the year.
What amount should be reported as financing net cash inflows for the current year?
a.
b.
c.
d.
2,400,000
2,200,000
2,500,000
2,300,000
Answer:
Net increase in borrowings
Vendor financing of property
Net cash inflow from borrowings
Issuance of share capital
Dividend paid
Net cash flow – financing
1,700,000
( 200,000)
1,500,000
1,500,000
( 700,000)
2,300,000
Problem 17-22
Riverside Company provided the following data for the current year:

Purchased a building for P1,200,000.
Paid P400,000 and signed a mortgage with the seller for the remaining P800,000.

Executed a debt-equity swap and replaced a P600,000 load by giving the lender
ordinary shares worth P600,000 on the date the swap was executed.

Purchased land for P1,000,000. Paid P350,000 and issued ordinary share worth
P650,000.

Borrowed P550,000 under a long-term loan agreement.
Used the cash from the loan proceeds to purchase additional inventory P150,000, to
pay cash dividend P300,000 and to increase the cash balance P100,000.
1. What amount should be reported as net cash used in investing activities?
a. 1,200,000
b. 2,200,000
c.
d.
400,000
750,000
Answer:
Cash paid for purchase of building
Cash paid for purchase of land
Net cash used – investing
400,000
350,000
750,000
2. What amount should be reported as net cash provided by financing activities?
a.
b.
c.
d.
350,000
850,000
250,000
550,000
Answer:
Proceeds to purchase inventory
Increase cash balance
Dividend paid
Net cash provided by financing activities
150,000
(100,000)
300,000
350,000
Problem 17-23
Karr Company reported net income of P3,000,000 for the current year. The following
changes occurred in several accounts:
Equipment
Accumulated depreciation
Note payable
250,000 increase
400,000 increase
300,000 increase

During the year, the entity sold equipment costing P250,000, with accumulated
depreciation of P120,000 at a gain of P50,000.

In December, the entity purchased equipment costing P500,000 with P200,000 cash
and a 12% note payable of P300,000.
1. What is the depreciation expense for the year?
a.
b.
c.
d.
520,000
400,000
280,000
120,000
Answer:
Increase in accumulated depreciation
Accumulated depreciation of equipment sold
Depreciation
400,000
120,000
520,000
2. What amount should be reported as net cash used in investing activities?
a. 350,000
b. 120,000
c. 220,000
d. 20,000
Answer:
Sale of equipment (250,000 – 120,000=130,000 + 50,000)
Payment of equipment
Net cash used in investing activities
180,000
(200,000)
( 20,000)
3. What amount should be reported as net cash provided by operating activities?
a.
b.
c.
d.
3,400,000
3,470,000
3,520,000
3,570,000
Answer:
Net income
Gain on sale of equipment
Depreciation
Cash flow from operations
3,000,000
( 50,000)
520,000
3,470,000
Problem 17-24
Reve Company provided the following data for the current year:
Gain on sale of equipment
Proceeds from sale of equipment
Purchase of Ace bonds, face amount, P2,000,000
Amortization of bond discount
Dividend declared
Dividend paid
Proceeds from sale of treasury shares with
Carrying amount of P650,000
60,000
100,000
1,800,000
20,000
450,000
380,000
750,000
1. What is net cash provided by financing activities?
a.
b.
c.
d.
200,000
270,000
300,000
370,000
Answer:
Proceeds from sale of equipment
Proceeds from sale of treasury share – Carrying amount
Dividend paid
Net cash provided by financing activities
100,000
650,000
(380,000)
370,000
2. What is net cash used in investing activities?
a.
b.
c.
d.
1,700,000
1,760,000
1,880,000
1,940,000
Answer:
Sale of equipment
Purchase of equipment – Face amount
Net cash used – investing
60,000
(2,000,000)
1,940,000
Problem 17-25
Zoe Company reported net income of P3,400,000 for the current year. The net income
included depreciation of P840,000 and a gain on sale equipment of P170,000.
The equipment had an original cost of P4,000,000 and accumulated depreciation of
P2,400,000. All of the following accounts increased during the current year.
Patent
Prepaid rent
Financial asset at fair value through other
Comprehensive income (FVOCI)
Bonds payable
450,000
680,000
100,000
500,000
What amount should be reported as net cash flow from investing activities?
a. 1,720,000 provided
b. 1,220,000 provided
c.
540,000 provided
d. 380,000 used
Answer:
Proceeds from sale of equipment
Increase in patent
Increase in financial asset at FVOCI
Net cash provided by investing activities
1,770,000
( 450,000)
( 100,000)
1,220,000
Original cost
Accumulated depreciation
Carrying amount
Gain on sale of equipment
Proceeds from sale of equipment
4,000,000
(2,400,000)
1,600,000
170,000
1,770,000
Problem 17-26
Mountain Company provided the following information:
2019
Cash and cash equivalents
Accounts receivable
Inventory
Prepaid expenses
Property, plant and equipment
Accumulated depreciation
Accounts payable
Accrued expenses
Note payable – bank (current)
Note payable – bank (noncurrent)
Ordinary share capital
Retained earnings
2018
5,600,000
7,400,000
3,000,000
3,500,000
8,000,000
6,500,000
400,000
600,000
55,000,000 42,000,000
(20,000,000) (16,000,000)
6,000,000
9,500,000
1,500,000
500,000
2,000,000
5,000,000
10,000,000
30,000,000 30,000,000
2,500,000
(1,000,000)
Cash needed to purchase new equipment was raised by borrowing from the bank with a
long-term note.
Equipment costing P2,000,000 and carrying amount of P1,500,000 was sold for
P1,800,000.
The entity paid cash dividend of P3,000,000 in 2019.
1. What is the net cash provided by operating activities?
a.
b.
c.
d.
7,400,000
6,900,000
8,000,000
7,700,000
Answer:
Net income
Decrease in accounts receivable
Increase in inventory
Decrease in prepaid expenses
Gain on sale of equipment
Depreciation
Decrease in accounts payable
Increase in accrued expenses
Net cash provided by operating activities
Retained earnings -2019
Retained earnings – 2018 (deficit)
Net increase in retained earnings
Add: Dividend paid
Net income
Accumulated depreciation – 2018
Depreciation for 2019 (squeeze)
Total
Accumulated depreciation on equipment sold
(2,000,000 – 1,500,000)
Accumulated depreciation – 2019
6,500,000
500,000
( 1,500,000)
200,000
( 300,000)
4,500,000
( 3,500,000)
1,000,000
7,400,000
2,500,000
1,000,000
3,500,000
3,000,000
6,500,000
16,000,000
4,500,000
20,500,000
( 500,000)
20,000,000
2. What is the net cash used in investing activities?
a.
b.
c.
d.
15,000,000
13,200,000
14,800,000
13,000,000
Answer:
Payment for new equipment
Proceeds from sale of equipment
Net cash used in investing activities
(15,000,000)
1,800,000
(13,200,000)
Property, plant and equipment – 2018
Payment for new equipment (squeeze)
42,000,000
15,000,000
Total
Cost of equipment sold
Property, plant and equipment – 2019
3. What is the net cash provided by financing activities?
a.
b.
c.
d.
57,000,000
( 2,000,000)
4,000,000
7,000,000
6,000,000
4,000,000
3,000,000
Answer:
Proceeds from borrowing on a long-term note payable
Dividend paid
Payment of current bank note payable (5,000,000 – 2,000,000)
Net cash provided by financing activities
10,000,000
( 3,000,000)
( 3,000,000)
4,000,000
Problem 17-27
Rosalynne Company reported the following statement of financial position at year-end:
2019
Cash
Accounts receivable
Investments, at cost
Plant
Accumulated depreciation
Accounts payable
Share capital
Retained earnings
2018
2,750,000
2,000,000
7,000,000
4,600,000
1,000,000
1,750,000
9,000,000
6,500,000
(3,000,000) (2,250,000)
4,750,000
3,750,000
7,500,000
5,000,000
4,500,000
3,850,000
An investment was sold for P1,250,000 during the year. There was no disposal of plant
during the year.
The net income for the year was P3,000,000, after income tax expense of P1,200,000.
A dividend of P2,350,000 was paid on December 31, 2019.
1. What is the net cash provided by operating activities?
a.
b.
c.
d.
1,850,000
2,350,000
2,850,000
1,100,000
Answer:
Net profit
Gain on sale of investment (1,250,000 – 75,000)
Increase in accounts receivable
Depreciation (3,000,000 – 2,250,000)
Increase in accounts payable
Net cash provided – operating
3,000,000
( 500,000)
(2,400,000)
750,000
1,000,000
1,850,000
2. What is the net cash used in investing activities?
a. 2,500,000
b. 1,250,000
c. 1,750,000
d. 500,000
Answer:
Sale of equipment
Purchase of plant (9,000,000 – 6,500,000)
Net cash used – investing
1,250,000
(2,500,000)
(1,250,000)
3. What is the net cash provided by financing activities?
a. 2,500,000
b. 2,350,000
c.
650,000
d. 150,000
Answer:
Issue of share capital (7,500,000 – 5,000,000)
Dividend paid
Net cash provided – financing
2,500,000
(2,350,000)
150,000
Problem 17-28
Weaver Company provided the following data:
Trade accounts receivable, net
Inventory
Accounts payable
2018
2019
840,000
1,500,000
950,000
780,000
1,400,000
980,000

Total sales were P12,000,000 for 2019 and P11,000,000 for 2018. Cash sales were
20% of total sales each year. Cost of goods sold was P8,400,000 for 2019.

Variable general and administrative expenses for 2019 were P1,200,000. They have
varied in proportion to sales, 50% have been paid in the year incurred and 50% the
following year. Unpaid expenses are not included in accounts payable.

Fixed general and administrative expenses, including P350,000 depreciation and
P50,000 bad debt expense, totaled P1,000,000 each year.
Eighty percent of fixed expenses involving cash were paid in the year incurred and
20% the following year.
Each year there was a P50,000 bad debt estimate and a P50,000 writeoff. Unpaid
expenses are not included in accounts payable.
1. What is the cash collected from customers during 2019?
a.
b.
c.
d.
12,010,000
12,060,000
11,960,000
11,890,000
Answer:
Accounts receivable – 2018
Sales – 2019
Total
Less: Accounts receivable – 2019
Writeoff
Cash collections in 2019
840,000
12,000,000
12,840,000
780,000
50,000
830,000
12,010,000
2. What is the cash disbursed for purchases during 2019?
a.
b.
c.
d.
8,500,000
8,270,000
8,300,000
8,200,000
Answer:
Inventory – 2018
Purchase (squeeze)
Goods available for sale
Less: inventory – 2019
Cost of goods sold
1,500,000
8,300,000
9,800,000
1,400,000
8,400,000
Accounts payable – 2018
Purchases
Total
Less: Accounts payable – 2019
Cash disbursed for purchase
950,000
8,300,000
9,250,000
980,000
8,270,000
3. What is the cash disbursed for expenses during 2019?
a.
b.
c.
d.
1,800,000
1,200,000
1,750,000
1,450,000
Answer:
Fixed expenses
Depreciation
Bad debt expense
Fixed expenses paid in 2019
Variable expenses paid in 2019
2019 (1,200,000 x 50%)
2018 (1,100,000 x 50%)
Total cash disbursement for expenses
1,000,000
( 350,000)
( 50,000)
600,000
Variable ratio (1,200,000 / 12,000,000)
2018 variable expenses (10% x 11,000,000)
10%
1,100,000
600,000
550,000
1,750,000
Problem 17-29
Haze Company provided the following information for the current year:
Cash
Accounts receivable
Merchandise inventory
Accounts payable
January 1
December 31
620,000
670,000
860,000
530,000
?
900,000
780,000
480,000
The sales and cost of goods sold were P7,980,000 and P5,830,000 respectively. All
sales and purchases were on credit.
Various expenses of P1,070,000 were paid in cash. There were no other pertinent
transactions.
1. What is the amount of collections from customers?
a.
b.
c.
d.
7,980,000
8,600,000
7,750,000
8,210,000
Answer:
Accounts receivable – January 1
Sales
Total
Accounts receivable – December 31
Cash collected from customers
2. What is the payment of accounts payable?
a.
b.
c.
d.
5,750,000
5,880,000
5,800,000
5,700,000
670,000
7,980,000
8,650,000
( 900,000)
7,750,000
Answer:
Merchandise inventory – January 1
Purchases (squeeze)
Available for sale
Merchandise inventory – December 31
Cost of goods sold
860,000
5,750,000
6,610,000
( 780,000)
5,830,000
Accounts payable – January 1
Purchases
Total
Accounts payable – December 31
Cash paid for accounts payable
530,000
5,750,000
6,280,000
( 480,000)
5,800,000
3. What is the cash balance on December 31?
a.
b.
c.
d.
1,090,000
1,500,000
2,570,000
3,050,000
Answer:
Cash – January 1
Cash collected from customers
Less: Payments of accounts payable
Expense
Cash balance – December 31
620,000
7,750,000
5,800,000
1,070,000
1,500,000
Problem 17-30
Mega Company gathered the following information about changes which took place
during the current year:
Cash
Accounts receivable, net
Inventory
Property, plant and equipment
Accumulated depreciation
Intangible asset, net of amortization
Accrued expenses
Accounts payable
Note payable – short-term debt
Bonds payable
( 150,000)
300,000
1,500,000
500,000
( 180,000)
275,000
( 50,000)
( 320,000)
( 700,000)
( 250,000)
Ordinary share capital, P10 par
Share premium
Retained earnings
( 125,000)
( 200,000)
( 600,000)
Equipment with had originally cost P200,000 and had a carrying amount of zero was
thrown away.
Equipment with a cost of P150,000 and accumulated depreciation of P100,000 was sold
for P50,000. Some new equipment was purchased during the year.
An intangible asset was acquired during the year for 25,000 ordinary shares. Each
share was selling for P13 at that time.
The entity retired P2,500,000 of 10% bonds at par and issued P2,750,000 of 8% bonds
at par. The income statement reported revenue of P7,000,000 and expenses of
P5,000,000.
1. What is the net cash provided by operating activities?
a.
b.
c.
d.
1,000,000
1,800,000
1,050,000
1,100,000
Answer:
Net income (7,000,000 – 5,000,000)
Depreciation
Increase in accounts receivable
Increase in inventory
Amortization (325,000 – 275,000)
Increase in accrued expenses
Increase in accounts payable
Net cash provided – operating
Net increase in accumulated depreciation
Add: Accumulated depreciation of equipment thrown away
Accumulated depreciation of equipment sold
Total depreciation
2. What is the net cash used in investing activities?
a. 850,000
b. 800,000
c. 900,000
2,000,000
480,000
( 300,000)
(1,500,000)
50,000
50,000
320,000
1,100,000
180,000
200,000
100,000
480,000
d. 950,000
Answer:
Sale of equipment
Purchase of equipment
Net cash used – investing
50,000
( 850,000)
( 800,000)
Net increase in PPE
Add: Cost of equipment thrown away
Cost of equipment sold
Purchase of equipment
500,000
200,000
150,000
850,000
Patent acquired (25,000 shares x 13)
Less: Increase in intangible asset
Amortization
325,000
275,000
50,000
3. What is the net cash used in financing activities?
a.
b.
c.
d.
250,000
450,000
950,000
125,000
Answer:
Retirement of bonds payable
Issuance of bonds payable
Dividend paid
Proceeds from note payable – short term debt
Net cash used – financing
(2,500,000)
2,750,000
(1,400,000)
700,000
450,000
Net income
Less: Retained earnings
Dividend paid
2,000,000
600,000
1,400,000
Problem 17-31
Beal Company reported the following changes in the statement of financial position
accounts during the current year:
Increase (Decrease)
Assets
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventory
Long-term investments
Property, plant and equipments
Accumulated depreciation
120,000
300,000
80,000
(100,000)
700,000
1,100,000
Liabilities and Shareholders’ Equity
Accounts payable and accrued liabilities
Dividend payable
Short-term bank debt
Long-term debt
Ordinary share capital, P10 par
Share premium
Retained earnings
(
5,000)
160,000
325,000
110,000
100,000
120,000
290,000
1,100,000
The following additional information relates to the current year:






Net income for the current year was P790,000.
Cash dividend of P500,000 was declared.
Equipment costing P600,000 and having a carrying amount of P350,000 was sold
for P350,000.
Equipment costing P110,000 was acquired through issuance of long-term debt.
A long-term investment was sold for P135,000. There were no other transactions
affecting long-term investments.
10,000 ordinary shares were issued for P22 a share.
1. What amount should be reported as net cash provided by operating activities?
a. 1,600,000
b. 1,040,000
c. 920,000
d. 705,000
Answer:
Net income
Increase in inventory
Decrease in accounts payable
Gain on sale of long-term investment (135,000 – 100,000)
Depreciation expense (600,000 – 350,000)
Cash provided by operating activities
790,000
( 80,000)
(
5,000)
( 35,000)
250,000
920,000
2. What amount should be reported as net cash used in investing activities?
a.
b.
c.
d.
1,005,000
1,190,000
1,275,000
1,600,000
Answer:
Purchased of short-term investments
Sale of long-term investments
Purchased of PPE
Sale of equipment
Net cash used in investing activities
( 300,000)
135,000
(1,190,000)
350,000
(1,005,000)
PPE net increase
Cost of equipment sold
Equipment acquired through issuance of long term debt
Cash paid for PPE
700,000
600,000
( 110,000)
1,190,000
3. What amount should be reported as net cash provided by financing activities?
a. 20,000
b. 45,000
c. 150,000
d. 205,000
Answer:
Cash dividend paid (500,000 – 160,000)
Proceeds from short-term debt
Issuance of ordinary share (10,000 x 22)
Net cash provided in financing activities
( 340,000)
325,000
220,000
205,000
Problem 17-32
New World Company recorded the following transactions during the current year.

Net income was P2,900,000, which included P300,000 loss resulting from the
condemnation of land by the city government.
The entity received P3,300,000 for the land carried at P3,600,000.

Patent account increased by P560,000 during the year, representing acquisition of
P680,000 and amortization of P120,000.

Property, plant and equipment had a net increase of P2,200,000.

Accumulated depreciation:
Ending balance
Beginning balance
4,200,000
3,270,000

Cash dividends of P250,000 were declared and paid.

Treasury shares with par value of P400,000 were acquired for P620,000 cash.

Convertible bonds issued at face amount of P2,000,000 were converted into share
capital during the year.
The par value of the share capital issued was P1,500,000.

All current assets and current liabilities, other than cash remained unchanged during
the year.

Working capital increased by P200,000 during the year.
1. What amount should be reported as net cash provided by operating activities?
a. 2,900,000
b. 4,250,000
c. 4,130,000
d. 3,950,000
Answer:
Net income
Amortization patent
Accumulated depreciation
Net cash provided by operating activities
2,900,000
120,000
930,000
3,950,000
2. What amount should be reported as net cash used in investing activities?
a.
b.
c.
d.
2,500,000
2,620,000
3,180,000
2,200,000
Answer:
Condemnation of land – loss
Gain on sale of land (3,300,000 – 3,600,000)
Property, plant and equipment
Net cash used in investing activities
( 300,000)
300,000
(2,200,000)
(2,200,000)
3. What amount should be reported as net cash used in financing activities?
a. 620,000
b. 250,000
c. 870,000
d.
0
Answer:
Proceeds from issuance of share capital (1,500,000 -2,000,000)
Cash dividends paid
Treasury share
Net cash used in financing activities
500,000
( 250,000)
620,000
870,000
Problem 17-33
1. All can be classified as cash and cash equivalents, except
a.
b.
c.
d.
Redeemable preference share due in 60 days
Treasury bill due for repayment in 90 days
Equity investments
Bank overdraft
2. When an entity purchased a three-month Treasury bill, how would the purchase be
treated in preparing the statement of cash flow?
a.
b.
c.
d.
Not reported
An outflow for financing activities
An outflow for lending activities
An outflow for investing activities
3. In a statement of cash flows, if used equipment is sold at a gain, the amount shown
as cash inflow from investing activities equals the carrying amount of the equipment
a.
b.
c.
d.
Plus the gain
Plus the gain and less the amount of tax
Plus both the gain and the amount of tax
With no addition or subtraction
4. In a statement of cash flows, if used equipment is sold at a loss, the amount shown
as a cash inflow from investing activities equals the carrying amount of the
equipment
a.
b.
c.
d.
Less the loss and plus the amount of tax
Less both the loss and the amount of tax
Less the loss
With no addition or subtraction
5. In a statement of cash flows using indirect method, a decrease in prepaid expense is
a.
b.
c.
d.
Reported as an outflow and inflow of cash
Reported as an outflow of cash
Deducted from net income
Added to net income
6. In a statement of cash flows, depreciation is treated as an adjustment to net income
because depreciation
a. Is a direct source of cash
b. Reduces income but does not involve cash outflow
c. Reduces net income and involves an inflow of cash
d. Is an inflow of cash for replacement of asset
7. Using indirect method for operating activities, an increase in inventory is presented
as
a.
b.
c.
d.
Outflow of cash
Inflow and outflow of cash
Addition to net income
Deduction from net income
8. Which of the following should not be disclosed in the statement of cash flows using
the indirect method?
a.
b.
c.
d.
Interest paid
Income taxes paid
Cash flow per share
Dividends paid on preference shares
9. Dividends received from an equity investee should be presented in the statement of
cash flows as
a.
b.
c.
d.
Deduction from cash flows from operating activities
Addition to cash flows from investing activities
Addition to cash flows from operating activities
Deduction from cash flows from investing activities
10. In a statement of cash flows, which of the following should be reported as cash flow
from financing activities?
a.
b.
c.
d.
Payment to retire mortgage note
Interest payment on mortgage note
Dividend payment
Payment to retire mortgage note and dividend payment
Problem 17-34
1. Which statement about the method of preparing the statement of cash flows is true?
a. The indirect method starts with income before tax.
b. The direct method is known as the reconciliation method.
c. The direct method is more consistent with the primary purpose of the statement
of cash flows.
d. All of these statements are true.
2. Which of the following is not disclosed in the statement of cash flows when prepared
under the direct method?
a.
b.
c.
d.
The major classes of gross cash receipts and gross cash payments
The amount of income taxes paid
A reconciliation of net income to net cash flow from operations
A reconciliation of ending retained earnings to net cash flow from operations
3. Required disclosures of a statement of cash flows prepared using the direct method
include a reconciliation of net income to net cash provided by
a.
b.
c.
d.
Operating activities
Financing activities
Investing activities
Operating, financing and investing activities
4. Noncash investing and financing activities are
a. Reported only if the direct method is used.
b. Reported only if the indirect method is used.
c. Disclosed in a note or separate schedule accompanying the statement of cash
flows.
d. Not reported.
5. Supplemental disclosures required only when the using the indirect method include
a.
b.
c.
d.
Reconciling net income with operating activities.
Amounts paid for interest and taxes.
Amounts deducted for depreciation and amortization
Significant noncash investing and financing activities.