CHAPTER 5

THE STATEMENT OF CASH FLOWS

PROBLEMS

5-1. (CURRENCY COMPANY)

Cash flows from operating activities

Profit before income tax (780,000 +1,820,000) P2,600,000
Adjustments for
Depreciation expense 750,000
Patent amortization expense 270,000
Income from investment in subsidiary (480,000)
Interest expense 100,000
Operating income before working capital changes P3,240,000
Increase in accounts receivable (340,000)
Decrease in accounts payable ( 26,000)
Cash generated from operations P2,874,000
Interest paid (100,000 – 18,000) (82,000)
Income tax paid (780,000 – 60,000) (720,000)
Net cash from operating activities P2,072,000

5-2. (YEN COMPANY)

Cash flows from operating activities

Collections from customers P983,000
Payments to suppliers and employees (675,000)
Cash generated from operations P308,000
Interest paid (82,000)
Income taxes paid (154,000)
Net cash from operating activities P 72,000

5-3. (PESO COMPANY)

(a) Indirect method

Cash flows from operating activities

Profit before income tax P220,000
Adjustments for
Depreciation expense 80,000
Operating income before working capital changes P300,000
Decrease in accounts receivable 50,000
Increase in inventories (89,000)
Decrease in accounts payable (46,000)
Increase in salaries payable 24,000
Cash generated from operations P239,000
Income tax paid (66,000 – 12,000) (54,000)
Net cash from operating activities P185,000

(b) Direct method

Cash flows from operating activities

Collections from customers P1,050,000
Payments to trade creditors (715,000)
Payments for salaries (96,000)
Cash generated from operations P 239,000
Income taxes paid 54,000
Net cash from operating activities P185,000

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Chapter 5 – The Statement of Cash Flows

1,000,000 + 50,000 = 1,050,000

580,000 + 89,000 + 46,000 = 715,000
120,000 - 24,000 = 96,000
66,000 - 12,000 = 54,000

5-4. (SWISS FRANC COMPANY)

(a) Direct method

Cash flows from operating activities

Collections from customers P6,220,000
Payments to trade creditors (4,140,000)
Payments for salaries (720,000)
Payments for insurance (560,000)
Cash generated from operations P 800,000
Income taxes paid (252,000)
Interest paid (175,000)
Net cash from operating activities P373,000

6,100,000 + 120,000 = 6,220,000

3,700,000 + 280,000 + 160,000 = 4,140,000
820,000 - 100,000 = 720,000
380,000 + 180,000 = 560,000
288,000 – 18,000 – 40,000 + 22,000 = 252,000
120,000 + 30,000 + 25,000 = 175,000

(b) Indirect method

Cash flows from operating activities

Profit before income tax P1,080,000
Adjustments for
Gain on sale of equipment (100,000)
Depreciation expense 220,000
Operating income before working capital changes P1,200,000
Decrease in accounts receivable 120,000
Increase in inventory (280,000)
Decrease in accounts payable (160,000)
Increase in prepaid insurance (180,000)
Increase in salaries payable 100,000
Cash generated from operations P800,000
Income taxes paid (252,000)
Interest paid paid (175,000
Net cash from operating activities P373,000

5-5.
Items that would be reported in the Statement of Cash Flows (indirect method)
1. Depreciation expense of P120,000 is added to profit before income taxes.
2. Net gain of P5,000 from sale of machine is deducted from profit before income taxes. (Gain
of P9,000 from sale of machine A less loss of P4,000 from sale of machine B).
3. Under investing activities section, P29,000 is reported as a cash inflow of sale of machine
(27,000 from machine A plus P2,000 from machine B).
4. Under investing activities, P250,000 is reported as a cash outflow for purchase of machine.

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Chapter 5 – The Statement of Cash Flows

5-6. (DOLLAR COMPANY)

(Indirect method)
Dollar Company
Statement of Cash Flows
For year ended December 31, 2012

Cash flows from operating activities

Profit P580,000
Adjustments for
Depreciation expense 290,000
Operating income before working capital changes P870,000
Decrease in accounts receivable 110,000
Increase in inventory (200,000)
Decrease in accounts payable (90,000)
Net cash from operating activities P690,000
Cash flows from investing activities
Purchase of equipment (880,000)
Cash flows from financing activities
Issue of ordinary share capital P550,000
Cash dividends paid (260,000) 290,000
Net increase in cash P100,000
Add cash balance, January 1 42,000
Cash balance, December 31 P142,000

5-7. (EURO COMPANY)

Euro Company
Statement of Cash Flows
For year ended December 31, 2012

Cash flows from operating activities

Profit before income taxes P2,955,000
Adjustments for
Depreciation expense 750,000
Gain on sale of plant assets (300,000)
Interest expense 100,000
Income before working capital changes P3,505,000
Increase in accounts receivable (600,000)
Increase in inventories (150,000)
Increase in prepaid rent (6,000)
Decrease in accounts payable (285,000)
Increase in salaries payable 120,000
Cash generated from operations P2,584,000
Interest paid ( 80,000)
Income taxes paid (281,800) P2,222,200
Cash flows from investing activities
Proceeds from sale of plant assets P 800,000
Payments for purchase of plant assets (7,600,000)
Payments for purchase of investment in associate (4,000,000) (10,800,000)

Cash flows from financing activities

Receipts from issuance of ordinary share capital P5,000,000
Receipts from issuance of notes 6,000,000
Payments for dividends (1,200,000) 9,800,000
Increase in cash P1,222,200
Add cash balance, beginning 430,000
Cash balance, end P1,652,200

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Chapter 5 – The Statement of Cash Flows

(Direct method)
Euro Company
Statement of Cash Flows
For year ended December 31, 2012

Cash flows from operating activities:

Cash receipts from customers P8,600,000
Cash payments for merchandise purchases (3,635,000)
Cash payments for salaries (1,980,000)
Cash payments for rent (131,000)
Cash payments for miscellaneous expenses (270,000)
Cash generated from operations P2,584,000
Interest paid ( 80,000)
Income taxes paid (281,800)
Net cash from operating activities P2,222,200
Cash flows from investing activities
Proceeds from sale of plant assets P 800,000
Payments for purchase of plant assets (7,600,000)
Payments for purchase of investment in associate (4,000,000) (10,800,000)
Cash flows from financing activities
Receipts from issuance of ordinary share capital P5,000,000
Receipts from issuance of notes 6,000,000
Payments for dividends (1,200,000) 9,800,000
Increase in cash P1,222,200
Add Cash balance, beginning 430,000
Cash balance, end P1,652,200

5-8. (RIYAL COMPANY)

Riyal Company
Statement of Cash Flows
For year ended December 31, 2012

Cash flows from operating activities

Profit for the year P 480,000
Adjustments for
Depreciation expense 600,000
Loss on sale of equipment 80,000
Impairment loss on goodwill 100,000
Amortization of discount on bonds payable 50,000
Gain on sale of long-term investments (30,000)
Increase in accounts receivable (500,000)
Decrease in inventory 150,000
Increase in accounts payable 300,000
Increase in trading securities (100,000)
Net cash from operating activities P 1,130,000
Cash flows from investing activities
Sale of equipment P420,000
Purchase of property and equipment (1,900,000)
Sale of long-term investment 280,000
Net cash flows from investing activities (1,200,000)

Cash flows from financing activities

Receipts from issuance of ordinary share capital P1,000,000
Payments for dividends (750,000)
Net cash flows from financing activities 250,000
Increase in cash P 180,000
Add cash balance, beginning 620,000
Cash balance, end P 800,000

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Chapter 5 – The Statement of Cash Flows

5-9. (RUPIAH COMPANY)

Purchase of treasury shares (1,000,000)

Increase in long-term debt 5,000,000
Depreciation expense 1,000,000
Amortization of intangibles 500,000
Loss on sale of equipment 300,000
Gain on sale of land (200,000)
Proceeds from issue of ordinary share 4,500,000
Purchase of equipment (6,000,000)
Proceeds from sale of equipment 1,000,000
Proceeds from sale of land 1,800,000
Payment of cash dividend (2,000,000)
Profit 8,500,000
Increase in accounts receivable (2,000,000)
Decrease in inventory 2,400,000
Increase in trade payables 4,200,000
Increase in income tax payable 1,300,000
Decrease in interest payable (700,000)
Impairment loss on equipment 300,000
Cash balance, January 1, 2012 8,000,000
Cash balance, December 31, 2012 26,900,000

5-10. (BAHT COMPANY)

Baht Company
Statement of Cash Flows
For the Year Ended December 31, 2012

Cash flows from operating activities

Profit (loss) for the year P (20,000)
Adjustments for
Depreciation expense 35,000
Amortization of premium on bonds (5,000)
Gain on equipment sale (4,000)
Gain on bond retirement (10,000)
Dividends on investment in associate 40,000
Income from associates (65,000)
Increase in accounts payable 18,000
Increase in revenue received in advance 7,000
Increase in accounts receivable (20,000)
Decrease in prepayments 6,000
Decrease in inventory 5,000 P(13,000)
Cash flows from investing activities
Purchase of property and equipment (30,000
Cash flows from financing activities
Retirement of bonds (80,000)
Issue of share capital 60,000
Purchase of treasury shares (16,000)
Payment of dividends (25,000) (61,000)
Decrease in cash P(104,000)
Add cash balance, beginning 204,000
Cash balance, end P 100,000

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Chapter 5 – The Statement of Cash Flows

MULTIPLE CHOICE QUESTIONS

Theory

MC1 D MC6 C MC11 D MC16 D

MC2 C MC7 A MC12 C MC17 C
MC3 A MC8 D MC13 D MC18 D
MC4 A MC9 A MC14 C MC19 A
MC5 C MC10 C MC15 A MC20 A

Problems

MC21 D 870,000 + 10,000 – 510,000 – 110,000 = 260,000

MC22 C 4,380,000 + 216,000 – 304,000 = 4,292,000
MC23 C 550,000 –500,000 + 125,000 = 175,000
MC24 B 250,000 + 550,000 – 600,000 – 450,000 = 250,000
MC25 B 200,000 + 500,000 – 250,000 = 450,000
MC26 D 750,000 – 29,000 + 21,000 + 15,000 = 757,000
MC27 C 260,000+40,000=300,000; 400,000–300,000=100,000; 100,000 +120,000-102,000 = 280,000
MC28 D 3,200,000 + 400,000 – 2,500,000 = 1,100,000
MC29 C 690,000-35,000-80,000+250,000+10,000+25,000+80,000 = 940,000
MC30 D 1,100,000 - 150,000 – 135,000 = 815,000
MC31 A 220,000 + 325,000 – 240,000 = 305,000
MC32 C 5,130,000 - 470,000 =430 ,000;1,820,000+80,000-1,700,000=200,000;
430,000–200,000=230,000+30,000 = 260,000
MC33 A 149,000-17,000+13,000=145,000; 840,000-53,000+32,000=819,000
MC34 B 3,600,000 + 2,500,000 – 1,550,000 – 2,910,000 = 1,640,000
MC35 D 910,000-40,000+70,000+50,000 = 990,000
990,000 – 60,000 – 50,000 – 90,000 + 30,000 = 820,000
MC36 C 30,000 – 5,000 = 25,000
MC37 A 264,000 + 25,000 = 289,000
MC38 D 820,000 – 25,000 -289,000 = 506,000
MC39 C 240,000-120,000= 120,000; 120,000 + 280,000 = 400,000
MC40 A 3,000,000+960,000–400,000=3,560,000;1,000,000+300,000–280,000 =1,020,00; 3,560,000 –
1,020,000 = 2,540,000
MC41 B 380,000 + 160,000 = 540,000
MC42 C 1,200,000 + 1,000,000 – 300,000 = 1,900,000
MC43 C 8,000,000 – 7,200,000 + 150,000 + 20,000 = 970,000
MC44 A Acc. Depreciation of equipment sold = 300,000 + 74,000 – 25,000 – 283,000 = 66,000
Cost of equipment sold = 66,000 + 100,000 = 166,000
Equipment purchased = 925,000 + 166,000 – 780,000 = 311,000
MC45 D Dividends declared = 500,000 + 1,000,000 – 710,000 – 20,000 = 770,000
Dividends paid = 22,000 + 770,000 – 34,000 = 758,000

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