Cebu Cpar Practical Accounting 1 Cash Flow - Um

1
CEBU CPAR
PRACTICAL ACCOUNTING 1
CASH FLOW – UM
PROF. U.C. VALLADOLID

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
1. Dicksen Company's income statement for the year ended December 31, 2007, reported net income of
$360,000. The financial statements also disclosed the following information:
Amortization ......................................... $ 20,000

Depreciation ......................................... 60,000
Increase in accounts receivable ...................... 140,000
Increase in inventory ................................ 48,000
Decrease in accounts payable ......................... 76,000
Increase in salaries payable ......................... 28,000
Dividends paid ....................................... 120,000
Purchase of equipment ................................ 150,000
Increase in long-term note payable ................... 300,000
Net cash provided by operating activities for 2007 should be reported as

a. $84,000.
b. $204,000.
c. $234,000.
d. $324,000.
2. The following information is available from the financial statements of Worthington Corporation for the
year ended December 31, 2007:
Net income .......................................... $396,000

Depreciation expense ................................ 102,000
Decrease in accounts receivable ..................... 126,000
Increase in inventories ............................. 90,000
Increase in accounts payable ........................ 24,000
Payment of dividends ................................ 54,000
Purchase of available-for-sale securities ........... 22,000
Decrease in income taxes payable .................... 16,000
What is Worthington Corporation's net cash flow from operating activities?

a. $440,000
b. $466,000
c. $520,000
d. $542,000
3. The following information is available from Ram Corporation's accounting records for the year ended
December 31, 2007:
Cash paid to suppliers and employees ................ $1,020,000

Cash dividends paid ................................. 60,000
Cash received from customers ........................ 1,740,000
Rent received ....................................... 20,000
Taxes paid .......................................... 220,000
Net cash flow provided by operating activities for 2007 was

a. $440,000.
b. $460,000.
c. $500,000.
d. $520,000.
4. Pecan Company sold a computer for $50,000. The computer's original cost was $250,000, and the
accumulated depreciation at the date of sale was $180,000. The sale of the computer should appear on
Pecan's annual statement of cash flows (indirect method) as
a. a reduction in cash flows from operating activities of $20,000 and an increase in
cash flows from investing activities of $50,000.
b. an increase in cash flows from operating activities of $20,000 and an increase in
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c. a reduction in cash flows from operating activities of $20,000 and an increase in
d. an increase in cash flows from operating activities of $20,000 and an increase in
5. Hale Inc. declared and paid cash dividends of $100,000 on common stock and $75,000 on preferred
stock. How would these dividends be presented in Hale's statement of cash flows?
a. As a $100,000 reduction in cash flows from investing activities.
b. As a $175,000 reduction in cash flows from investing activities.
c. As a $100,000 reduction in cash flows from financing activities.
d. As a $175,000 reduction in cash flows from financing activities.
6. During 2005, Lewis Corp. acquired buildings for $325,000, paying $75,000 cash and signing a 10%
mortgage note payable in 10 years for the balance. How should the transaction be shown in the cash
flow statement for Lewis in 2005?
a. As a $325,000 reduction in cash flows from investing activities and a $250,000
increase in cash flows from financing activities.
b. As a $325,000 reduction in cash flows from investing activities.
c. As a $75,000 reduction in cash flows from investing activities.
d. As a $250,000 increase in cash flows from financing activities.
7. Frye Company uses the direct method to prepare its statement of cash flows. The company had the
following cash flows during 2007:
Cash receipts from the issuance of common stock ......... $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 220,000
company ...............................................
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. $60,000.
b. $40,000.
c. $30,000.
d. $(20,000).

company ...............................................
The net cash provided by (used in) investing activities is

a. $220,000.
b. $140,000.
c. $60,000.
d. $(80,000).

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company ...............................................
The net cash provided by (used in) all activities is

a. $580,000.
b. $410,000.
c. $380,000.
d. $(60,000).
10. Jostine Company show the following amounts in its cash flow statement for the year ended December
31, 2007:
Net cash used in operating activities 1,000,000
Net cash used in investing activities 4,000,000
Net cash provided by financing activities 3,500,000
Cash and cash equivalents, January 1 6,000,000
What would be the balance of cash and cash equivalents at December 31, 2007?
a. 6,500,000 c. 5,500,000
b. 4,500,000 d. 7,500,000
11. The following information pertains to Jostine Company during 2007.
Dividend received 500,000
Dividend paid 1,000,000
Cash received from customers 9,000,000
Proceeds from issuing common stock 1,500,000
Interest received 200,000
Proceeds from sale of long term investments 2,000,000
Cash paid to suppliers and employees 6,000,000
Interest paid on long term debt 400,000
Income taxes paid 300,000
Cash balance January 1 1,800,000
What is the net cash provided by operating activities for the year ended December 31, 2007 using the
direct method?
a. 3,000,000 c. 2,700,000
b. 3,300,000 d. 2,000,000
12. The net income for the year ended December 31 for Kaila Corporation was P3,520,000. Additional data
are as follows:
Purchase of plant assets 2,800,000
Depreciation of plant assets 1,480,000
Dividends declared 970,000
Net decrease in noncash current assets 290,000
Loss on sale of equipment 130,000
What should be the cash provided by operating activities in Kaila’s cash flow statement for the year
ended December 31 using the indirect method?
a. 5,420,000 c. 7,250,000
b. 5,130,000 d. 5,290,000
13. Renz Company reported net income of P7,500,000 for 2007. Changes occurred in several balance
sheet accounts during 2007 as follows:
Investment in Videogold stock carried on the equity basis
550,000 increase
Accumulated depreciation, caused by major repair to project
equipment 210,000 decrease
Premium on bonds payable 140,000 decrease
Deferred tax liability 180,000 increase
In Renz’s 2007 cash flow statement, the reported net cash provided by operating activities should be
a. 6,780,000 c. 7,270,000
b. 6,990,000 d. 7,540,000
14. The 2007 net income Renz Company was P3,000,000. Following are the changes in Renz’s balance
sheet accounts during 2007:
Deferred tax liability 30,000 decrease
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Accumulated depreciation, due to major repair to equipment

40,000 decrease
Long term investment at equity 110,000 increase
Unearned interest income 20,000 decrease
The reported net cash provided by operating activities in 2007 Renz’s cash flow statement should be
a. 2,840,000 c. 2,800,000
b. 2,900,000 d. 2,880,000
15. The following selected information is provided by Cathy Company. All sales are credit sales and all
receivables are trade receivables.
Accounts receivable, January 1, net of allowance P100,000
1,200,000
Accounts receivable, December 31, net of allowance of
P300,000 1,600,000
Sales of the year 8,000,000
Uncollectible accounts written off during the year 50,000
Bad debts expense for the year 250,000
Cash expenses for the year 5,250,000
Net income for the year 2,500,000
What is the net cash flow from operations that Cathy Company would report in its cash flow statement?
a. 2,150,000 c. 2,100,000
b. 2,350,000 d. 2,900,000
16. Cathy Company entered into the following transactions during the year:
Purchases of trading securities 2,500,000
Sale of trading securities 1,100,000
Purchases of available for sale securities 4,500,000
Sale of available for sale securities 2,300,000
Cathy had no investment securities at the beginning of the year. The cost of the trading securities sold
was P1,500,000. The cost of the available for sale securities sold was P1,700,000. The market value of
the remaining trading securities on December 31 was P1,800,000 and the remaining available for sale
securities, P3,000,000. The net income for the year was P5,000,000. The net income does not include
any noncash items except for those related to investment securities. Cathy Company shall report net
cash flow from operating activities at
a. 4,900,000 c. 2,400,000
b. 2,600,000 d. 4,400,000
17. Joseph Company reported net income of P3,000,000 for 2007. Changes occurred in several balance
sheet accounts as follows:
Equipment 250,000 increase
Accumulated depreciation 400,000 increase
Note payable 300,000 increase
 During 2007, Joseph sold equipment costing P250,000, with accumulated
depreciation of P120,000 for a gain of P50,000.
 In December 2007, Joseph purchased equipment costing P500,000 with
P200,000 cash and a 12% note payable of P300,000.
In Joseph’s 2007 cash flow statement, net cash used in investing activities should be
a. 20,000 c. 220,000
b. 120,000 d. 350,000
18. Kris Company is preparing a cash flow statement for the year ended December 31, 2007. It has the
following account balances:
12/31/2006 12/31/2007
Machinery 2,500,000 3,200,000
Accumulated depreciation 1,020,000 1,200,000
Loss on sale of machinery 40,000
During 2007, Kris sold for P260,000 a machine that cost P400,000, and purchased several items of
machinery. Depreciation on machinery for 2007 was
a. 280,000 c. 320,000
b. 180,000 d. 240,000
19. Kris Company had the following activities during 2007:
 Acquired 2,000 shares of stock in Maybel Company for P2,600,000.
 Sold an investment in Rate Motors for P3,500,000 when the carrying value was
P3,300,00.
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
Acquired a P5,000,000, 4 – year certificate of deposit from a bank. (During the year,
interest of P375,000 was paid to Kris).
 Collected dividends of P120,000 on stock investments.
In the 2007 cash flow statement, net cash used in investing activities should be
a. 3,980,000 c. 4,100,000
b. 3,805,000 d. 3,725,000
20. During 2007 Sarah Company had the following activities related to its financial operations:
Payment for the early retirement of long-term bonds payable
(carrying value P7,400,000) 7,500,000
Distribution in 2007 cash dividend declared in 2006 to preferred
shareholders 620,000
Carrying value of convertible preferred stock converted into
common shares 1,200,000
Proceeds from sale of treasury stock (carrying value at, P860,000)
950.000
In the 2007 cash flow statement, net cash used in financing activities should be
a. 5,350,000 c. 7,170,000
b. 5,970,000 d. 7,160,000
21. Kris Company reported bonds payable of P4,700,000 at December 31, 2006 and P5,000,000 at
December 31, 2007. During 2007, Kris issued P2,000,000 of bonds payable in exchange for equipment.
There was no amortization of premium or discount during the year. What amount should Kris report in
its 2007 cash flow statement for redemption of bonds payable?
a. 300,000 c. 2,000,000
b. 1,700,000 d. 2,300,000
22. Joshtine Corporation provides the following date:

2007 2006
Cash 300,000 200,000
Accounts receivable, net 840,000 580,000
Merchandise inventory 660,000 420,000
Prepaid expenses 100,000 50,000
Long term investment 80,000 -
Property, plant and equipment 1,130,000 600,000
Accumulated depreciation 110,000 50,000
Accounts payable 530,000 440,000
Accrued expenses 140,000 130,000
Dividends payable 70,000 -
Note payable – long term debt 500,000 -
Commons stock 1,200,000 900,000
Retained earnings 560,000 330,000
Net credit sales 6,400,000 4,000,000
Cost of goods sold 5,000,000 3,200,000
Expenses 1,000,000 520,000
Net income 400,000 280,000
All accounts receivable and accounts payable relate to trade merchandise. Accounts payable are
recorded net and always paid to take all of the discounts allowed. The allowance for doubtful accounts
at the end of 2007 was the same s at the end of 2006. No receivables were charged against the
allowance during 2007. The proceeds from the note payable were used to finance a new store building.
Common stock was sold to provide additional working capital.
1. Cash collections in 2007 from customers amounted to
a. 5,560,000
b. 5,850,000
c. 6,140,000
d. 6,400,000
2. Cash payments to merchandise creditors in 2007 amounted to

a. 4,670,000
b. 4,910,000
c. 5,000,000
d. 5,150,000
3. Net cash used in investing activities during 2007 was
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a. 80,000
b. 530,000
c. 610,000
d. 660,000
23. Joshtine Company’s balance sheet accounts as of December 31, 2007 and 2006 and information
relating to 2007 activities are presented below.
2007 2006
Assets
Cash 460,000 200,000
Trading securities 600,000 -
Accounts receivable (net) 1,020,000 1,020,000
Inventory 1,360,000 1,200,000
Long-term investments 400,000 600,000
Property, plant and equipment 3,400,000 2,000,000
Accumulated depreciation (900,0000) (900,000)
Patent 180,000 200,000
Total assets 6,520,000 4,320,000
Liabilities and Stockholders’ Equity
Accounts payable and accrued liabilities 1,650,000 1,440,000
Short-term debt 650,000 -
Common stock, P20 par 1,600,000 1,400,000
Additional paid-in capital 740,000 500,000
Retained earnings 1,880,000 980,000
Total liabilities and stockholders’ equity 6,520,000 4,320,000`
 Net income for 2007 was P1,380,000.

 Cash dividends of P480,000 were declared and paid in 2007.
 Equipment costing P800,000 and having a carrying amount of P300,000 was
sold in 2007 for P300,000.
 A long-term investment was sold in 2007 for P270,000. There were no other
transactions affecting long-term investments in 2007.
 10,000 shares of common stock were issued in 2007 for P44 a share.
 The trading securities were purchased for cash on December 31, 2007.
1. Net cash provided by operating activities was
a. 1,380,000
b. 1,830,000
c. 1,280,000
d. 1,900,000
2. Net cash used in investing activities was

a. 2,230,000
b. 1,790,000
c. 1,730,000
d. 1,630,000
3. Net cash provided by financing activities was

a. 610,00
b. 880,000
c. 910,000
d. 1,090,000
24. The differences in Ulysses Company’s balance sheet accounts at December 31, 2007 and 2006 are
presented below:
Increase (Decrease)
Assets
Cash and cash equivalents 120,000
Short-term investments 300,000
Accounts receivable, net -
Inventory 80,000
Long-term investments (100,000)
Property, plant and equipment 700,000
Accumulated depreciation -
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1,100,000
Liabilities and Stockholders’ Equity
Accounts payable and accrued liabilities (5,000)
Dividends payable 160,000
Short-term bank debt 325,000
Long-term debt 110,000
Common stock, P10 par 100,000
Additional paid-in capital 120,000
Retained earnings 290,000
1,100,000
The following additional information relates to 2007:
 Net income 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 shares of common stock were issued for P22 a share.
In Ulysses’s 2007 cash flow statement,
a. 1,160,000
b. 1,040,000
c. 920,000
d. 705,000

a. 1,005,000
b. 1,190,000
c. 1,275,000
d. 1,600,000
3. Net cash provided by financing activities was

a. 20,000
b. 45,000
c. 150,000
d. 205,000
25. The following is Ulysses Company’s comparative balance sheet accounts:
2007 2006
Cash 2,300,000 1,500,000
Accounts receivable 1,150,000 1,200,000
Inventory 2,000,000 1,800,000
Property, plant and equipment 6,400,000 3,000,000
Accumulated depreciation (1,150,000) (1,000,000)
Investment in Belle Company 3,200,000 3,000,000
Loan receivable 800,000 -
Accounts payable 1,000,000 900,000
Income tax payable 50,000 250,000
Dividend payable 1,000,000 1,500,000
Finance lease liability 3,800,000 -
Common stock 5,000,000 5,000,000
Additional paid-in capital 500,000 500,000
Retained earnings 3,350,000 1,350,000
 Net income for 2007 was P3,000,000.
 On December 31, 2006, Ulysses acquired 25% of Belle Company’s common
stock for P3,000,000. Belle reported income of P1,200,000 for the year ended
December 31, 2007. Belle paid cash dividend of P400,000 on its common stock
during the year.
 During 2007, Ulysses loaned P1,000,000 to Chase Company an unrelated
company. Chase made the first semiannual principal repayment of P200,000,
plus interest of 10%, on October 1, 2007. No accrual of interest was made on
December 31, 2007.
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 On January 1, 2007, Ulysses sold equipment costing P600,000, with a carrying

amount of P350,000 for P400,000 cash.
 On January 1, 2007, Ulysses entered into a finance lease for an office building.
The present value of the annual rental payments is P4,000,000, which equals the
fair value of the building. Ulysses made the first rental payment of P600,000
when due on December 31, 2007. the payment includes an implicit interest of
P400,000.
 Ulysses declared cash dividend in one year and paid the dividend in the
subsequent year.
a. 2,800,000
b. 2,900,000
c. 2,600,000
d. 2,850,000

a. 500,000
b. 300,000
c. 600,000
d. 400,000
3. Net cash used in financing activities was

a. 2,100,000
b. 1,600,000
c. 1,200,000
d. 1,700,000
26. The following is a comparative balance sheet for Top Ten Clothiers Inc. for the years 2007 and 2006:
Top Ten Clothiers Inc.

Comparative Balance Sheet
December 31, 2007 and 2006
Assets 2007 2006

Cash .................................. $ 43,000 $ 240,000
Accounts receivable ................... 390,000 210,000
Inventory ............................. 360,000 450,000
Long-term investments ................. 0 120,000
Total assets ........................ $ 793,000 $1,020,000
Liabilities and Equities
Accounts payable ...................... $ 150,000 $ 240,000
Operating expenses payable ............ 48,000 30,000
Bonds payable ......................... 140,000 200,000
Common stock .......................... 250,000 250,000
Retained earnings ..................... 205,000 300,000
Total liabilities and equities ...... $ 793,000 $1,020,000
The income statement for the year ended December 31, 2007, follows:
Top Ten Clothiers

Income Statement
For the Year Ended December 31, 2007
Sales $1,120,000
Cost of goods sold:
Beginning inventory, January 1, 2007 $ 450,000
Purchases ........................... 660,000
Cost of goods available ............. $1,110,000
Less ending inventory, December 31, 360,000 750,000
2007 ...............................
Gross profit on sales ................. $ 370,000
Operating expenses .................... 360,000
Operating income ...................... $ 10,000
Other revenues and expenses:
Loss on sale of long-term investment (15,000)
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Net loss .............................. $ (5,000)
After paying cash dividends, the decrease in retained earnings totaled $95,000. Management is alarmed
by the shrinkage in the company's cash position during 2007. Prepare a statement of cash flows for
2007 using the direct method.
27. EMD, Inc., has the following comparative balance sheets and income statement
available for your examination:
EMD, Inc.
Balance Sheets
December 31, 2007 and 2006
(in thousands)
2007 2006
Cash ......................................... $ 66 $ 36
Accounts Receivable .......................... 138 96
Inventory .................................... 206 168
Property, Plant, and Equipment ............... 266 246
Accumulated Depreciation ..................... (70) (54)
Total Assets ................................. $606 $492
Accounts Payable ............................. $ 90 $ 68

Income Tax Payable ........................... 16 20
Common Stock ................................. 406 326
Retained Earnings ............................ 94 78
Total Equities ............................... $606 $492
EMD, Inc.
Income Statement
For the Year Ended
December 31, 2007
(in thousands)
Sales $536
Cost of Goods Sold 396
Gross Profit 140
Operating Expenses:
Depreciation $22
Income Taxes 18
Other 56 96
Net Income $ 44
Additional information:
1. Fully depreciated equipment costing $6,000 was abandoned on the first day
of business of 2007.
2. A building to store materials was acquired for $26,000.
3. A stock dividend of $20,000 was declared and distributed, as was a cash
dividend of $8,000.
4. Additional stock was sold during 2007 for cash.
Prepare a statement of cash flows for EMD, Inc., for 2007 employing the indirect
method of identifying cash flows from operating activities.
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PROF. U.C. VALLADOLID

Amortization ......................................... $ 20,000

Net cash provided by operating activities for 2007 should be reported as

Net income .......................................... $396,000

What is Worthington Corporation's net cash flow from operating activities?

Cash paid to suppliers and employees ................ $1,020,000

Net cash flow provided by operating activities for 2007 was

cash flows from investing activities of $50,000.

Cash receipts from the issuance of common stock ......... $400,000

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

Cash receipts from the issuance of common stock ......... $400,000

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

Cash receipts from the issuance of common stock ......... $400,000

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

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

Accumulated depreciation, due to major repair to equipment

22. Joshtine Corporation provides the following date:

2. Cash payments to merchandise creditors in 2007 amounted to

3. Net cash used in investing activities during 2007 was

 Net income for 2007 was P1,380,000.

2. Net cash used in investing activities was

3. Net cash provided by financing activities was

2. Net cash used in investing activities was

3. Net cash provided by financing activities was

 On January 1, 2007, Ulysses sold equipment costing P600,000, with a carrying

2. Net cash used in investing activities was

3. Net cash used in financing activities was

Top Ten Clothiers Inc.

Assets 2007 2006

Top Ten Clothiers

Net loss .............................. $ (5,000)

Accounts Payable ............................. $ 90 $ 68

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