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11 Statement of Cash Flow

Multiple Choice

NARRBEGIN: Haiti
The next item(s) is/are based on the following
The income statement of HAITI COMPANY is presented below

Haiti Company
INCOME STATEMENT
For the Year Ended December 31, 2014

Sales P20,700,000
Cost of goods sold:
Inventory, January 1 P 5,700,000
Purchases 13,200,000
Goods available for sale 18,900,000
Inventory, December 31 4,800,000 14,100,000
Gross income 6,600,000
Operating expenses:
Selling expenses P1,350,000
Administrative expenses 2,100,000 3,450,000
Net income P3,150,000

Additional information:

a Accounts receivable decreased P1,080,000 during the year.


b Prepaid expenses increased P510,000 during the year.
c Accounts payable to suppliers of merchandise decreased P825,000 during the year.
d Accrued expenses payable decreased P300,000 during the year.
e Administrative expenses include depreciation expense of P180,000.
NARREND: Haiti

1. What is the total amount of cash received from customers during the year?
A. P21,780,000
B. P20,700,000
C. P19,620,000
D. P20,955,000

ANS: A
Sales P20,700,000
Add: Decrease in accounts receivable 1,080,000
Cash receipts from customers P21,780,000
REF: Roque 2014
NAR: Haiti
TOP: Operating Activities: Direct and Indirect Methods

2. What is the total amount of cash paid to suppliers during the year?
A. P13,200,000
B. P15,825,000
C. P14,025,000
D. P12,375,000

ANS: C
Cost of goods sold P14,100,000
Less: Decrease in inventories 900,000
Purchases 13,200,000
Add: Decrease in accounts payable 825,000
Cash payments to suppliers P14,025,000
REF: Roque 2014
NAR: Haiti
TOP: Operating Activities: Direct and Indirect Methods

3. What is the total amount of cash paid for operating expenses during the year?
A. P3,480,000
B. P3,060,000
C. P4,260,000
D. P4,080,000

ANS: D
Operating expenses
(excluding depreciation of P180.000) P3,270,000
Add: Increase in prepaid expenses 510,000
Decrease in accrued expenses payable 300,000
Cash payments for operating expenses P4,080,000
REF: Roque 2014
NAR: Haiti
TOP: Operating Activities: Direct and Indirect Methods

4. What is the net amount of cash provided by operating activities?


A. P2,985,000
B. P3,675,000
C. P3,495,000
D. P3,150,000

ANS: B
CASH FLOWS FROM OPERATING ACTIVITIES
DIRECT METHOD
Cash receipts from customers P21,780,000
Cash payments to suppliers (14,025,000)
Cash payments for operating expenses (4,080,000)
Net cash provided by operating activities P3,675,000

INDIRECT METHOD
Net income P3,150,000
Depreciation expense 180,000
Decrease in accounts receivable 1,080,000
Decrease in inventory 900,000
Increase in prepaid expenses (510,000)
Decrease in accounts payable (825,000)
Decrease in accrued expenses payable (300,000)
Net cash provided by operating activities P3,675,000
REF: Roque 2014
NAR: Haiti
TOP: Operating Activities, Direct and Indirect Methods

NARRBEGIN: Ghana
The next item(s) is/are based on the following
The December 31, 2014, income statement of GHANA COMPANY contained the following condensed
information:

Fees revenue P2,520,000


Operating expenses (excluding depreciation) P1,872,000
Depreciation expense 180,000
Loss on sale of equipment 78,000 2,130,000
Income before income taxes 390,000
Income tax expense 120,000
Net income P270,000

Ghana Company's comparative statements of financial position at December 31, 2014 and 2013,
contained the following data:
2014 2013
Accounts receivable P111,000 P162,000
Accounts payable* 123,000 93,000
Income taxes payable 12,000 25,500
* pertains to operating expenses
NARREND: Ghana

5. How much was received from customers?


A. P2,469,000
B. P2,520,000
C. P2,601,000
D. P2,571,000

ANS: D
Fees revenue P2,520,000
Add: Decrease in accounts receivable
(P162,000-P111,000) 51,000
Cash receipts from customers P2,571,000
REF: Roque 2014
NAR: Ghana
TOP: Operating Activities, Direct Method

6. How much was paid for operating expenses?


A. P1,872,000
B. P1,791,000
C. P1,842,000
D. P1,902,000

ANS: C
Operating expenses (excluding depreciation) P1,872,000
Less: Increase in accounts payable
(P123,000-P93,000) 30,000
Cash payments for operating expenses P1,842,000
REF: Roque 2014
NAR: Ghana
TOP: Operating Activities, Direct Method

7. What is the net cash provided by operating activities? (Use the direct method.)
A. P622,500
B. P595,500
C. P625,500
D. P592,500

ANS: B
Cash receipts from customers (see no. 1) P2,571,000
Cash payments for operating expenses (see no. 2) (1,842,000)
Cash payments for income taxes* (133,500)
Net cash provided by operating activities P595,500

*Income tax expense P120,000


Add: Decrease in income taxes payable
(P25,500-P12,000) 13,500
Cash payments for income taxes P133,500
REF: Roque 2014
NAR: Ghana
TOP: Operating Activities, Direct Method

NARRBEGIN: Sudan
The next item(s) is/are based on the following
SUDAN COMPANY uses the direct method to prepare its statement of cash flows. Sudan's trial balances
at December 31, 2014 and 2013, are shown below:

December 31
2014 2013
DEBITS
Cash P105,000 P96,000
Accounts receivable 99,000 90,000
Inventory 93,000 141,000
Property, plant, and equipment 300,000 285,000
Unamortized bond discount 13,500 15,000
Cost of goods sold 750,000 1,140,000
Selling expenses 424,500 516,000
General and administrative expenses 411,000 453,900
Interest expense 12,900 7,800
Income tax expense 61,200 183,600
P2,270,100 P2,928,300

CREDITS
Allowance for bad debts P3,900 P3,300
Accumulated depreciation 49,500 45,000
Accounts payable - trade 75,000 46,500
Income taxes payable 63,000 87,300
Deferred income taxes payable 15,900 13,800
8% Bonds payable 135,000 60,000
Ordinary share capital 150,000 120,000
Share premium 27,300 22,500
Retained earnings 134,100 193,800
Sales 1,616,400 2,336,100
P2,270,100 P2,928,300

Additional data are as follows:

1 Sudan purchased P15,000 in equipment during 2014.

2 One-third of Sudan's depreciation expense is allocated to selling expenses and the remainder to
general and administrative expenses.

3 Bad debt expense for 2014 was P15,000. During the year, uncollectible accounts totaling P14,400
were written off. The company re¬ ports bad debts as selling expense.

Required
Based on the preceding data, determine the amounts that should be reported on Sudan's statement of cash
flows for the year ended December 31, 2014, for the following:
NARREND: Sudan

8. Cash collected from customers


A. P1,593,000
B. P1,578,000
C. P1,607,000
D. P1,639,800

ANS: A
Sales P1,616,400
Less: Increase in accounts receivable, net of
write offs (P9,000 + P14,400) 23,400
Cash collected from customers P1,593,000
REF: Roque 2014
NAR: Sudan
TOP: Operating Activities, Direct Method

9. Cash paid to suppliers


A. P769,500
B. P826,500
C. P673,500
D. P730,500

ANS: C
Cost of goods sold P750,000
Less: Decrease in inventory 48,000
Purchases 702,000
Less: Increase in accounts payable 28,500
Cash payments to suppliers P673,500
REF: Roque 2014
NAR: Sudan
TOP: Operating Activities, Direct Method

10. Cash paid for interest


A. P14,400
B. P22,200
C. P600
D. P11,400

ANS: D
Interest expense P12,900
Less: Decrease in unamortized bond discount 1,500
Cash paid for interest P11,400
REF: Roque 2014
NAR: Sudan
TOP: Operating Activities, Direct Method

11. Cash paid for income taxes


A. P39,000
B. P83,400
C. P87,400
D. P34,800

ANS: B
Income tax expense P61,200
Decrease in income taxes payable 24,300
Increase in deferred tax liability (2,100)
Cash paid for income taxes P83,400
REF: Roque 2014
NAR: Sudan
TOP: Operating Activities, Direct Method

12. Cash paid for selling expenses


A. P408,000
B. P423,000
C. P405,000
D. P409,500

ANS: A
Selling expenses P424,500
Depreciation (P4.500* x 1/3) (1,500)
Bad debt expense (15,000)
Cash paid for selling expenses P408,000
* increase in accumulated depreciation
REF: Roque 2014
NAR: Sudan
TOP: Operating Activities, Direct Method

13. BURUNDI COMPANY'S income statement for the year ended December 31, 2014, reported
net income of P478,800. In preparing the statement of cash flows, the accountant noted the
following transactions during 2014 that might affect cash flow from operating activities:
1 Burundi purchased 300 treasury shares at a cost of P20 per share. These shares were then resold at
P25 per share.

2 Burundi sold 300 of Loleng ordinary shares at P200 per share. The fair value of these shares was
P145 per share at December 31, 2013. This investment was shown as a non-trading equity security on
Burundi's statement of financial position at December 31, 2013.

3 Burundi changed from the straight-line method to the double-declining-balance method of


depreciation for its machinery. The cumulative effect of the change was P43,800.

4 Burundi revised its estimate for bad debts. Prior to 2014, Burundi's bad debt expense was 1% of its
net sales. In 2014, this rate was increased to 2%. Net sales for 2014 were Pl,500,000, and net accounts
receivable decreased by P36,000 during 2014.

5 Burundi issued 1,500 shares of its P10 par ordinary shares for a patent. The ordinary shares had a
market value of P23 per share on the transaction date.

6 Depreciation expense amounted to P117,000.

7 Burundi Company holds 40% of the Sioning Corp.'s ordinary shares as a long-term investment.
Sioning Corp. reported net income of P81,000 for 2014.

8 Sioning Corp. paid a total cash dividends of P6,000 to all investees in 2014.

9 Burundi declared a 10% stock dividend. Three thousand of P10 par ordinary shares were distributed.
The market price on the date of declaration of the stock dividend was P20 per share.

What is the amount of net cash provided by operating activities?


A. P585,300
B. P586,800
C. P555,300
D. P587,700

ANS: A
Net income P478,800
Depreciation expense 117,000
Gain on sale of investment (16,500)
Decrease in accounts receivable 36,000
Income from investment - equity method (32,400)
Dividends from equity investment 2,400
Net cash provided by operating activities P585,300
REF: Roque 2014
TOP: Operating Activities, Indirect Method

NARRBEGIN: Nam
The next item(s) is/are based on the following
The worksheet below presents the comparative statement of financial position items of NAMIBIA
COMPANY at December 31, 2014 and 2013, with a column that shows the increase (decrease) from 2013
to 2014:
Increase
2014 2013 (Decrease)
Cash P4,037,500 P3,500,000 P537.500
Accounts receivable 5,640,000 5,840,000 (200,000)
Inventories 9,250,000 8,575,000 675,000
Property, plant, & equipment 16,535,000 14,835,000 1,700,000
Accumulated depreciation (5,825,000) (5,200,000) (625,000)
Investment in associate 1,525,000 1,375,000 150,000
Loan receivable 1,312,500 --- 1,312,500
Total assets P32,475,000 P28,925,000 P3,550,000
Accounts payable P5,075,000 P4,775,000 P300,000
Income taxes payable 150,000 250,000 (100,000)
Dividends payable 400,000 500,000 (100,000)
Liability under finance lease 2,000,000 --- 2,000,000
Ordinary shares, P10 par 2,500,000 2,500,000 ---
Share premium 7,500,000 7,500,000 ---
Retained earnings 14,850,000 13,400,000 1,450,000
Total liabilities and equity P32,475,000 P28,925,000 P3,550,000

Additional information:

1 On December 31, 2013, Namibia acquired 25% of Orly Co.'s ordinary shares for P1,375,000. On that
date, the book value of Orly's assets and liabilities, which approximated their fair values, was
P5,500,000. Orly reported income of P600,000 for the year ended December 31, 2014. No dividend
was paid on Orly's ordinary shares during the year.*

2 During 2014, Namibia loaned P1,500,000 to Ariel Co., an unrelated company. Ariel made the first
semi-annual principal repayment of P187,500, plus interest at 10%, on December 31, 2014.

3 On January 2, 2014, Namibia sold equipment costing P300,000, with a carrying amount of P175,000,
for P200,000 cash.

4 On December 31, 2014, Namibia entered into a finance lease for an office building. The present value
of the annual rental payments is P2,000,000, which equals the fair value of the building. Namibia
made the first rental payment of P300,000 when due on January 2, 2015.

5 Net income for 2014 was P1,850,000

6 Namibia declared and paid cash dividends for 2014 and 2013 as follows:
Declared Paid Amount
2013 Dec. 15,2013 Feb. 20,2014 P500,000
2014 Dec. 15, 2014 Feb. 20,2015 400,000
Based on the preceding information, determine the following:
NARREND: Nam

14. Net cash provided by operating activities


A. P2,025,000
B. P2,150,000
C. P2,175,000
D. P2,000,000

ANS: B
REF: Roque 2014
NAR: Nam
TOP: Operating, Investing, & Financing Activities

15. Net cash used in investing activities


A. P962,500
B. P1,300,000
C. P1,262,500
D. P1,112,500

ANS: D
REF: Roque 2014
NAR: Nam
TOP: Operating, Investing, & Financing Activities

16. Net cash used in financing activities


A. P500,000
B. P350,000
C. P800,000
D. P900,000

ANS: A
CASH FLOWS FROM OPERATING ACTIVITIES

Net income P1,850,000


Depreciation 750,000*
Gain on sale of equipment (25,000)**
Share of income - equity method (150,000)***
Decrease in accounts receivable 200,000
Increase in inventories (675,000)
Increase in accounts payable 300,000
Decrease in income taxes payable (100,000)
Net cash provided by operating activities P2,150,000

*Net increase in accumulated depreciation P625,000


Add: Accumulated depreciation
on equipment sold:
Cost P 300,000
Carrying value (175,000) 125,000
Depreciation for 2014 P750,000

**Proceeds from sale of equipment P200,000


Carrying value 175,000
Gain on sale of equipment P25,000

***Share of income- equity method (P600,000 x 25%) P150,000


REF: Roque 2014
NAR: Nam
TOP: Operating, Investing, & Financing Activities

NARRBEGIN: Leso
The next item(s) is/are based on the following
The schedule below shows the account balances of LESOTHO CO. at the beginning and end of the year
ended December 31, 2014:

DEBITS
Cash and cash equivalents P666,000 P150,000
Investment in trading securities 30,000 120,000
Accounts receivable 444,000 300,000
Inventories 873,000 900,000
Prepaid insurance 7,500 6,000
Land and building 585,000 585,000
Equipment 933,000 510,000
Discount on bonds payable 25,500 27,000
Treasury shares 15,000 30,000
Cost of goods sold 1,617,000
Selling and general expenses 861,000
Income taxes 105,000
Unrealized loss on trading securities 12,000
Loss on sale of equipment 3,000
Total debits P6,177,000 P2,628,000

CREDITS
Allowance for bad debts P24,000 P15,000
Accumulated depreciation - Building 78,750 67,500
Accumulated depreciation - Equipment 137,250 82,500
Accounts payable 165,000 180,000
Motes payable - current 210,000 60,000
Accrued expenses payable 54,000 26,100
Inccme taxes payable 105,000 30,000
Unearned revenue 3,000 27,000
Notes payable - noncurrent 120,000 180,000
Bonds payable 750,000 750,000
Deferred tax liability 141,000 159,900
Ordinary shares, P10 par 1,078,200 600,000
Retained earnings appropriated for
treasury shares 15,000 30,000
Retained earnings appropriated for
possible building expansion 114,000 69,000
Unappropriated retained earnings 103,800 336,000
Share premium 348,000 15,000
Sales 2,694,000
Gain on sale of trading securities 36,000
Total credits P6,177,000 P2,628,000

Additional information:

a All purchases and sales were on account.

b Equipment with an original cost of P45,000 was sold for P21,000.

c Selling and general expenses include the following:


Building depreciation P11,250
Equipment depreciation 75,750
Bad debt expense 9,000
Interest expense 54,000

d A six-month note payable for P150,000 was issued in connection with the purchase of new
equipment.

e The noncurrent note payable requires the payment of P60,000 per year, plus interest until paid.

f Treasury shares were sold for P3,000 more than their cost.

g During the year, a 30% stock dividend was declared and issued. At that time, there were 60,000 of
P10 par ordinary shares outstanding. However, 600 of these shares were held as treasury shares at that
time and were prohibited from participating in the stock dividend. Market value of ordinary shares
was P50 per share when the stock dividend was declared.

h Equipment was overhauled, extending its useful life, at a cost of P18,000. The cost was debited to
Equipment.

Based on the given data, calculate the following:


NARREND: Leso

17. Net income for 2014


A. P135,000
B. P150,900
C. P130,500
D. P132,000

ANS: D
Sales P2,694,000
Gain on sale of trading securities 36,000
Cost of goods sold (1,617,000)
Selling and general expenses (861,000)
Income taxes (105,000)
Unrealized loss on trading securities (12,000)
Loss on sale of equipment (3,000)
Net income P132,000
REF: Roque 2014
NAR: Leso
TOP: Operating, Investing, & Financing Activities

18. Cash dividends declared and paid during 2014


A. P24,000
B. P156,000
C. P22,200
D. P0

ANS: A
Unappropriated retained earnings, Dec. 31, 2013 P336,000
Net income (see no. 1) 132,000
Decrease in appropriation for treasury shares 15,000
Increase in appropriation for possible
building expansion (45,000)
Stock dividend declared (60,000 issued - 600
treasury = 59,400 outstanding x 30% x P10) (178,200)
Remaining unappropriated retained earnings 259,800

Unappropriated retained earnings, Dec. 31, 2014,


including net income for 2014* 235,800
Assumed cash dividends declared and paid
during 2014 P24,000

*The net income for the year has not yet been closed to unappropriated retained earnings.
The trial balance presented in the problem still includes nominal accounts.
REF: Roque 2014
NAR: Leso
TOP: Operating, Investing, & Financing Activities

19. Proceeds from issuance of ordinary shares during the year


A. P300,000
B. P330,000
C. P630,000
D. P808,200

ANS: C
Increase in ordinary shares (Pl,078,200 - P600,000) P478,200
Less: Stock dividend (P10 x 59,400 x 30%) 178,200
Par value of additional ordinary shares
issued in 2014 P300,000

Increase in share premium (P348,000 - P15,000) P333,000


Less: Share premium from resale of
treasury shares at more than cost 3,000
Share premium from shares issued in 2014 P330,000
Proceeds from issuance of ordinary shares in 2014
(P300,000 + P330,000) P630,000
REF: Roque 2014
NAR: Leso
TOP: Operating, Investing, & Financing Activities

20. Proceeds from sale of trading securities


A. P78,000
B. P114,000
C. P126,000
D. P42,000

ANS: B
Net decrease in investment in trading securities P 90,000
Less: Unrealized loss on trading securities 12,000
Carrying value of trading securities sold 78,000
Add: Gain on sale of trading securities 36,000
Proceeds from sale of trading securities P114.000
REF: Roque 2014
NAR: Leso
TOP: Operating, Investing, & Financing Activities

21. Accumulated depreciation of equipment sold


A. P21,000
B. P45,000
C. P24,000
D. P27,000

ANS: A
Proceeds from sale of equipment (see information "b") P21,000
Add: Loss on sale of equipment 3,000
Book value of equipment sold 24,000
Cost of equipment sold (see information "b") 45,000
Accumulated depreciation of equipment sold P21,000
REF: Roque 2014
NAR: Leso
TOP: Operating, Investing, & Financing Activities

22. Cash paid for purchase of equipment


A. P150,000
B. P318,000
C. P450,000
D. P300,000

ANS: D
Net increase in equipment (P933,000-P510,000) P423,000
Sale of equipment (see information "b") 45,000
Overhaul of equipment (see information "h") (18,000)
Purchase of equipment 450,000
Less: Note payable issued 150,000
Cash paid P300,000
REF: Roque 2014
NAR: Leso
TOP: Operating, Investing, & Financing Activities

23. Proceeds from sale of treasury shares


A. P18,000
B. P15,000
C. P12,000
D. P30,000

ANS: A
Cost of treasury shares sold (P30.000-P15.000) P15,000
Share premium from sale of treasury shares 3,000
Proceeds from sale of treasury shares P18,000
REF: Roque 2014
NAR: Leso
TOP: Operating, Investing, & Financing Activities
24. Net cash provided by operating activities
A. P135,000
B. P261,000
C. P249,000
D. P267,900

ANS: C
Net income P132,000
Depreciation expense (Pll.250 + P75.750) 87,000
Loss on sale of equipment 3,000
Unrealized loss on trading securities 12,000
Amortization of bond discount (P27.000 - P25.500) 1,500
Gain on sale of trading securities (36,000)
Proceeds from sale of trading securities (see no. 4) 114,000*
Decrease in deferred tax liability (18,900)
Increase in net accounts receivable (135,000)
Decrease in inventories 27,000
Increase in prepaid insurance (1,500)
Decrease in accounts payable (15,000)
Increase in accrued expenses payable 27,900
Increase in income taxes payable 75,000
Decrease in unearned revenue (24,000)
Net cash provided by operating activities P249,000

*Cash flows arising from the purchase and sale of trading securities are classified as operating activities.
REF: Roque 2014
NAR: Leso
TOP: Operating, Investing, & Financing Activities

25. Net cash used in investing activities


A. P318,000
B. P297,000
C. P183,000
D. P279,000

ANS: B
Purchase of equipment (see no. 6) P(300,000)
Overhaul of equipment (see information "h") (18,000)
Sale of equipment (see information "b") 21,000
Net cash used in investing activities P(297,000)
REF: Roque 2014
NAR: Leso
TOP: Operating, Investing, & Financing Activities

26. Net cash provided by financing activities


A. P564,000
B. P561,000
C. P546,000
D. P318,000

ANS: A
Payment of cash dividends (see no. 2) P(24,000)
Retirement of notes payable (P180.000 - P120.000) (60,000)
Sale of treasury shares (see no. 7) 18,000
Issuance of ordinary shares (see no. 3) 630,000
Net cash provided by financing activities P564,000
REF: Roque 2014
NAR: Leso
TOP: Operating, Investing, & Financing Activities