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San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com
The primary purpose of a statement of cash flows is to provide relevant information about cash receipts and
cash payments of an entity during a period.
Problem 1:
Xavier Company provided the following information for the current year:
After-tax profit P3,960,000
Depreciation expense 1,020,000
Amortization of intangible assets 200,000
Gain on sale of equipment 440,000
Loss on sale of building 210,000
Decrease in accounts receivable 1,260,000
Increase in inventory 900,000
Increase in accounts payable 240,000
Payment of dividends 540,000
Purchase of financial asset at amortized cost 220,000
Decrease in income tax payable 160,000
Increase in interest payable 100,000
Increase in long-term note payable 2,000,000
Problem 2:
Marsee Company provided the following data for the current year:
Purchase of building for cash
(cash was borrowed from bank) P5,500,000
Sale of long-term investment for cash 5,000,000
Dividends paid 6,000,000
Issuance of ordinary shares for cash 2,500,000
Purchase of patent for cash 1,250,000
Payment of bank loan 1,500,000
Increase in customers’ deposit 200,000
Issuance of bonds payable for cash 3,000,000
Payment to reacquire own shares 900,000
1|P a g e TSIY/RSORIANO/BVILLALUZ/JBINALUYO
No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com
Problem 3:
Filomena Company used the direct method to prepare the statement of cash flows. The company had the following cash
flows during the current year:
Cash receipts from issuance of ordinary shares P4,000,000
Cash receipts from customers 8,000,000
Cash receipts from dividends on long-term investments 300,000
Cash received from sale of trading securities 2,500,000
Cash receipts from repayment of loan made to another entity 2,200,000
Cash payment for purchase of inventory 7,800,000
Cash payments for wages and other operating expenses 1,200,000
Cash payments for insurance 100,000
Cash payments for dividends 200,000
Cash payments for taxes 400,000
Cash payment to purchase trading securities 1,000,000
Cash payment to purchase land 800,000
Cash balance, January 1 3,500,000
FAR Theories
1. The primary purpose of a statement of cash flows is to provide relevant information about
A. An entity’s ability to generate positive net cash flows.
B. An entity’s ability to meet cash operating needs.
C. The cash receipts and cash disbursements of an entity during a period.
D. Difference between net income and associated cash receipts and disbursements.
2. 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 of the statement of cash flows.
D. All of the above statements are true.
7. Cash advances and loans made by a financial institution are usually classified as
A. Operating activities B. Investing activities
C. Financing activities D. Component of cash and cash equivalents
2|P a g e TSIY/RSORIANO/BVILLALUZ/JBINALUYO
No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com
9. Under IFRS, the dividend received from share investments can be classified as
A. Either an operating activity or investing activity
B. Either an operating activity or financing activity
C. Only as an operating activity
D. Only as an investing activity
10. How should a gain on sale of equipment for cash be reported in the cash flow statement using the indirect method?
A. In operating activities as an addition to net income.
B. In operating activities as a deduction from net income.
C. In investing activities as a cash inflow.
D. In investing activities as a cash outflow.
11. How should a loss on sale of equipment for cash be reported in the cash flow statement using the indirect method?
A. In operating activities as an addition to net income.
B. In operating activities as a deduction from net income.
C. In investing activities as a cash inflow.
D. In investing activities as a cash outflow.
12. In a statement of cash flows, depreciation is treated as an adjustment to reported earnings because depreciation
A. Reduces reported net earnings but does not involve an outflow of cash.
B. Reduces reported net earnings and involves an inflow of cash.
C. Is an inflow of cash to a reserve account for replacement of assets.
D. Is a direct source of cash.
END OF HANDOUT
3|P a g e TSIY/RSORIANO/BVILLALUZ/JBINALUYO