Assignment No.

4
Module 04

Name: Jessbel G. Mahilum Section: BSMA 3 – CD1

Course: Intermediate Accounting III Date Submitted: December 16, 2022

PROBLEM NO. 1
Brown Company reported the following information for the current year:
Sales P 2,800,000
Cost of goods sold 1,000,000
Distribution costs 400,000
Administrative expenses 350,000
Depreciation 250,000
Interest expense 80,000
Income tax expense 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 remain
unchanged.

Requirement: Compute the net cash provided by operating activities for the current year.

Answer:

Sales P 2,800,000
Cost of goods sold (1,000,000)
Distribution cost (400,000)
Administrative expense (350,000)
Interest paid (100,000)
Income tax expense (280,000)
Net cash provided by operating 670,000
activities
Interest expense 80,000
Premium amortization 20,000
Interest paid 100,000

PROBLEM NO. 2

Zoe Company reported a net income of P3,400,000 for the current year. The net income
included depreciation of P800,000 and a gain on sale of equipment of P200,000.

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 P 450,000
Prepaid rent 700,000
Financial asset at FVOCI 100,000
Bonds payable 500,000
Requirement: Compute the net cash provided by investing activities for the current year.

Answer:

Proceeds from sale of equipment 1,800,000

Increase in patent (450,000)
Increase in financial asset at FVTOCI (100,000)
Net cash provided by investing 1,250,000
activities
Original cost 4,000,000
Accumulated depreciation 2,400,000
Carrying amount 1,600,000
Gain on sale of equipment 200,000
Proceeds from sale of equipment 1,800,000

PROBLEM NO. 3

During the current year, Teb Company had the following activities related to financial operations:

Payment for the early retirement of long-term P7,500,000

bonds payable with carrying amount of
P7,400,000

Payment in the current year of cash dividend 600,000

declared in prior year to preference shareholders

Carrying amount of convertible preference shares

converted into ordinary shares 1,200,000

Proceeds from sale of treasury shares with carrying

amount at cost, P800,000 950,000

Requirement: Compute the net cash used in financing activities for the current year.

Answer:

Payment of bonds payable (7,500,000)

Payment of cash dividend (600,000)
Proceeds from sale of treasury shares 950,000
Net cash used in financing activities (7,150,000)
The conversion of preference shares into ordinary shares is a noncash financing activity and
therefore has no cash effect.
PROBLEM NO. 4

Hill Company provided the following comparative statement of financial position.

Assets 2021 2020

Cash and cash equivalents P 750,000 P 950,000

Accounts receivable 1,750,000 1,100,000

Inventory 2,550,000 1,800,000

Prepaid expenses 100,000 150,000

Property, plant and 5,300,000 4,300,000

equipment

Accumulated depreciation ( 1,150,000 ) ( 800,000 )

P9,300,000 P7,500,000

Liabilities and Equity

Accounts payable P 1,250,000 P 1,000,000

Accrued expenses 50,000 200,000

Share capital 4,750,000 4,250,000

Retained earnings 3,250,000 2,050,000

P 9,300,000 P 7,500,000

Additional information:

1. The statement of retained earnings for 2021 showed a net income of P1,500,000 and a
cash dividend paid of P300,000.
2. During the current year, the entity purchased equipment for cash and issued share
capital for cash.

Requirement: Prepare a statement of cash flows for the current year using the indirect method
Answer:
 Hill Company
Statement of Cash Flow
For the year ended December 31, 2021

CASH FLOWS FROM OPERATING ACTIVITIES

Net Income P 1,500,000 Adjustment for:
Depreciation 350,000
Income before working capital changes 1,850,000
Increase/(Decrease) in current assets
Accounts receivable (650,000)
Inventory (750,000)
Prepaid expenses 50,000
Increase/(Decrease) in current liabilities
Accounts payable 250,000
Accrued expenses (150,000)
Net cash provided by Operating Activities P 600,000

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of equipment (1,000,000)
Net cash (used in) Investing Activities P (1,000,000)

CASH FLOWS FROM FINANCING ACTIVITIES

Issuance of shares 500,000
Dividends (300,000)
Net cash provided by Financing Activities P 200,000

NET (DECREASE) IN CASH (200,000)

Add: Cash, beginning – January 1 950,000
CASH, ENDING – December 31 P 750,000

PROBLEM NO. 5

Mountain Company reported the following income statement for the current year:

Sales P 4,500,000
Cost of goods sold:
Inventory – January 1 P 750,000
Purchases 2,850,000
Goods available for sale 3,600,000
Inventory – December 31 ( 600,000 ) 3,000,000
Gross income 1,500,000
Expenses:
Salaries 600,000
Rent 250,000
 Insurance 20,000
Doubtful accounts expense 30,000
Other expense 100,000
Depreciation 50,000 1,050,000
Net income 450,000

Additional information
December 31 January 1
Accounts receivable 540,000 440,000
Allowance for doubtful accounts 40,000 20,000
Inventory 600,000 750,000
Prepaid insurance 15,000 10,000
Accounts payable 280,000 160,000
Accrued salaries payable 50,000 80,000
Equipment 1,200,000 1,200,000
Accumulated depreciation 290,000 240,000

During the year, the entity recognized doubtful accounts expense of P30,000 and wrote off
uncollectible accounts of P10,000.

Requirement: Determine the cash flow from operating activities using the direct method and
indirect method.

Answer:

Indirect Method:

Mountain Company
Statement of Cash Flow
For the year ended December 31, 2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income P 450,000
Adjustment for:
Doubtful accounts 30,000
Depreciation 50,000
Income before working capital changes 530,000
Increase/(Decrease) in current assets
Accounts receivable (110,000)
Inventory 150,000
Prepaid insurance (5,000)
Increase/(Decrease) in current liabilities
Accounts payable 120,000
Accrued salaries payable (30,000)
Net cash provided by Operating Activities P 655,000
Direct Method:

Mountain Company
Statement of Cash Flow
For the year ended December 31, 2022
CASH FLOWS FROM OPERATING ACTIVITIES
Cash sales P 4,390,000
Cash purchases (2,730,000)
Salaries (630,000)
Rent (250,000)
Insurance (25,000)
Other expenses (100,000)
Net cash provided by Operating Activities P 655,000