FINANCIAL STATEMENTS

Assessment Activities

MULTIPLE CHOICE THEORIES

1. Which of the following statements are correct concerning fair presentation of financial
statements?
I. In virtually all circumstances, fair presentation is achieved by compliance with applicable
Philippine Financial Reporting Standards.
II. Financial statements shall present fairly the financial position, performance and cash flows of
an enterprise.
III. An enterprise whose financial statements comply with PFRS shall make an explicit and
unreserved statement of such compliance in the notes.
IV. Inappropriate accounting treatments are rectified either by disclosure of the accounting
policies used or by note or explanatory material.
A. I, II, III & IV B. II, III & IV C. I, II & IV D. I, II & III

2. Which basic feature is applied when immaterial amounts of similar nature and function are
grouped or condensed as one line item in the financial statements?
A. aggregation B. accounting policy C. offsetting D. comparability

3. Which of the following is an example of offsetting?

A. the allowance for doubtful accounts is deducted from accounts receivable.
B. the accumulated depreciation is deducted from property, plant and equipment.
C. the total liabilities are deducted from total assets to at net assets.
D. gains and losses from disposal of noncurrent assets are reported by deducting the
proceeds from the carrying amount of the assets and the related selling cost.

4. Which of the following will result to a fair presentation of financial information?

I. Selecting and applying accounting policies in accordance with IFRS.
II. Presenting information including accounting policies, in a manner that provides relevant and
faithfully represented financial information.
III. Providing additional disclosures when specific requirements of IFRS is insufficient to enable
users to understand the impact of transactions on the entity’s financial position and financial
performance.
IV. Disclosing inappropriate accounting policies used either by notes or explanatory material
without rectification.
A. III & IV B. I & II C. I, II & IV D. I, II & III

5. Which statements are correct concerning the general features in the presentation of financial
statements?
I. An entity shall prepare its financial statements except for cash flow information under the accrual
basis of accounting.
II. The presentation and classification of items in the financial statements shall be retained from
on period to the next.
III. Assets and liabilities, income and expenses, shall not be offset unless required or permitted
by another IFRS.
IV. Comparative information need not be disclosed in respect of the previous period for all
numerical information in the financial statements.
A. I, II, III & IV B. II, III & IV C. I & IV D. I, II & III

6. Which is incorrect concerning the concept of materiality and aggregation?

A. Materiality depends on the size and nature of the item judged in the circumstances of
its omission or misstatement.
B. Specific disclosure requirements of an IFRS must be met even if the resulting
information is not material.
C. Items of a dissimilar nature or function shall be presented separately unless they are
immaterial.
D. Information is material if its nondisclosure could influence the economic decisions of
users taken based on the financial statements.

7. Which feature is applied when the effects of transaction and other events are recognized when
they occur and they are recorded in the accounting records and reported in the financial
statements of the periods to which they relate?
A. Going concern B. Entity concept C. Time period D. Accrual basis

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8. Which statement is incorrect concerning the “line items” on the face of the statement of financial
position?
A. As a minimum, IAS 1 requires that the face of the statements of financial position shall
include certain line items.
B. Additional line items, heading and subtotals shall be presented on the face of the
statement of financial position when such presentation is relevant to the understanding of
the entity’s financial position.
C. IAS 1 simply provides a list of items that are sufficiently different in nature or function
to warrant separate presentation on the face of the statement of financial position.
D. IAS 1 prescribes the order or format in which items are to be presented on the face of
the statements of financial position.

9. Which of the following is not a component of complete set of financial statements?

A. Statement of financial position
B. Statement of changes in equity
C. Notes, comprising a summary of significant policies and another explanatory
D. Addition statements such as environmental reports and value-added statements.

10. Which of the following is a limitation of the statement of financial position?

I. Many items that are of financial value are omitted.
II. Judgements and estimates are used.
III. Current fair value is not reported.
A. I only B. II only C. I & II D. I, II & III

11. Which statement is correct concerning presentation of information on the face of the statement
of financial position?
I. Additional line items, headings and subtotals shall be presented in the face of the
statement of financial position when such presentation is relevant to an understanding of
the entity’s financial position.
II. The IFRS/PFRS does not prescribe the format in which items are to be prepared.
A. I only B. II only C. Both I & II D. Neither I nor II

12. The statement of financial position is useful for analyzing all of the following except
A. liquidity B. solvency C. profitability D. financial flexibility

13. The operating cycle of an entity

A. is set by the industry’s trade association usually on an average length of time for all
firms which are members of the association
B. is the time between the acquisition of assets for processing and their realization in cash
or cash equivalents.
C. is the period of time that normally elapsed from the time the entity expends cash to the
time it converts trade receivables back into cash.
D. causes the distinction between current and noncurrent items to depend on whether
they will affect cash within one year.

14. Under IAS 1, when an entity’s normal operating cycle is not clearly identifiable, its duration is
assumed to be
A. 12 months B. 6 months C. 3 months D. 24 months

15. Which of the following is not a criterion for classifying an asset as current?
A. it expects to realize the asset, or intends to sell or consume it, in its normal operating
cycle;
B. it holds the asset primarily for the purpose of trading;
C. it expects to realize the asset within twelve months after the reporting period; or

D. the asset is cash or cash equivalents restricted from being exchanged or used to settle
a liability for at least twelve months after the reporting period.

16. Investment securities held for the purpose of retiring long-term bonds payable should be
classified as
A. current assets B. non-current assets C. deferred liability D. intangible assets

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17. Which of the following shall not be classified as current asset?

A. A receivable from a customer not collectible within one year.
B. Current tax asset
C. Goodwill arising from business combination accounted for as a purchase
D. Noncurrent assets held for sale

18. Which of the following shall not be classified as a current liability?

A. An obligation expected to be settled in the entity’s normal operating cycle.
B. An obligation held primarily for the purpose of being trading.
C. An obligation due to be settled within 12 months after the reporting period.
D. An obligation for which the entity has an unconditional right to defer settlement for at
least 12 months after the reporting period.

19. Which obligations are classified as current liabilities even if they are due to be settled after
more than 12 months after the end of the reporting period?
A. Payable arising from purchase of goods and consumption of services relating to entity’s
conduct of primary operations.
B. Long term financial liabilities
C. Bank overdrafts
D. Cash dividends payable

20. A long-term debt that is due to be settled within 12 months after the reporting period is
classified as current when
I. an agreement to refinance or rescheduled payment on a long-term basis is completed
after the reporting period and before the financial statements are authorized to issue.
II. the entity has the discretion to refinance or roll over the obligation for at least 12 months
after the reporting period under an existing loan facility.
A. I only B. II only C. Either I or II D. Neither I nor II

21. For an entity that presents current and non-current classification of assets and liabilities,
deferred tax assets and liabilities shall be classified on the statement of financial position as
A. current assets and liabilities
B. noncurrent assets and noncurrent liabilities
C. both current and noncurrent assets and liabilities depending on the period of reversal.
D. both current and noncurrent assets and liabilities depending if related to a current and
noncurrent asset or liability.

22. When an entity breaches an undertaking under a long-term loan agreement on or before the
end of the reporting period with the effect that the liability becomes payable on demand,
I. the liability is classified as current even if the lender has agreed after the reporting period
and before the issuance of the financial statements not to demand payment as a
consequence of the breach.
II. the liability is classified as noncurrent if the lender agreed before the end of the reporting
period within which to rectify the breach.
A. I only B. II only C. Either I or II D. Neither I nor II

23. For purposes SRC Rule 68, large or publicly accountable entities are those that meet any of
the following criteria except:
A. Total assets of more than P350 Million and total liabilities of more than P250 Million.
B. Are required to file financial statements under Part II of SRC Rule 68.
C. Are in the process of filing their financial statements for the purpose of issuing any class
of instruments in a public market.
D. Are holders of secondary licenses issued by regulatory agencies.

24. Which of the following are sources of revenue?

I. sale of goods III. allowing others to use the entity’s resources
II. rendering of services IV. borrowing from banks
A. I, II, III and IV B. I, II and III C. II, III and IV D. I and III

25. Which of the following is not a line item on the face of the income statement using the function
of expense method.
A. revenue B. finance costs C. tax expense D. salaries and wages

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26. Which of the following line items is normally shown in income statement presenting expenses
by function but nor in an income statement presenting expenses by nature?
A. gross profit C. income from operations
B. income from associates D. finance cost

27. Which of the following will not appear in the statement of changes in equity?
A. changes in depreciation method C. net loss
B. correction of prior period D. dividends

28. The operating expenses section of a statement of comprehensive income does not include
A. selling expenses C. interest expense
B. admin expense D. loss on sale of securities

29. The best measure of a firm’s ongoing ability to generate cash flows in the future is
A. profit from continuing operations C. discontinued operations
B. profit before tax D. net profit

30. A discontinued operations is a component of an entity that either been disposed of, or is
classified as held for sale and
A. is not part of a single coordinated plan to dispose a major line of business or
geographical area of operations.
B. represents a separate major line of business or geographical area of operations.
C. is discontinuing several products within an ongoing line of business.
D. is a subsidiary whose activities are similar to those of the parents and other subsidiaries

31. The results of a discontinued operation, net of tax shall be presented

A. as a single amount on the face of the income statement with no details disclosed in the
notes.
B. as a single amount on the face of the income statement with appropriate disclosure of
the details in the notes.
C. side by side with continuing operations with details for revenues and expenses
attributable to the discontinued operation shown on the face of the income statement
D. in the notes only

32. What is the primary purpose of the statement of cash flows?

A. to provide information about an entity’s financial position for a point in time.
B. to provide information about an entity’s financial performance for a period of time.
C. to provide information that is useful in assessing the ability of the entity to generate
cash.
D. to provide information about an entity’s financial structure.

33. When preparing a statement of cash flows using the indirect method, the gain on sale of fixed
assets should be reported as a/an
A. cash inflow from investing activities.
B. cash outflow from investing activities.
C. addition to profit to arrive at cash flows from operating activities.
D. deduction from profit to arrive at cash flows from operating activities.

34. In preparing a statement of cash flows, which of the following transactions would be
considered an investing activity?
A. investment by the owner C. proceeds of sale of machinery
B. withdrawal by the owner D. payment to employees

35. Investing activities are

A. that involves the production or purchase and the sale of goods and services to
customers.
B. that involves making and collecting loans, purchasing and selling of fixed assets.
C. with owners or long-term creditors of the business.
D. that involves receipt of interest payments, cash collections from customers.

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36. Under the indirect method, which of the following items would be added to the profit to arrive
at cash flows from operating activities.
A. gain on sale of fixed assets. C. decrease in accounts payable
B. increase in prepaid expense D. decrease in accounts receivable

37. Which of the following would appear only in the statement of cash flows using indirect method?
A. cash payment for operating expense C. depreciation expense
B. cash receipts from customers D. cash receipts for money borrowed
from a bank

38. A company’s wages payable decreased from the beginning to the end of the year. In the
company’s statement of cash flows in which operating activities section is prepared under the
direct method, the cash paid for wages would be
A. wages expense plus wages payable at the beginning of the year.
B. wages expense plus the decrease in wages payable from the beginning to the end of
the period.
C. wages expense less the decrease in wages payable from the beginning to the end of
the period.
D. the same as wages expense.

39. The statement of cash flows is

A. another name for statement of financial position.
B. a financial statement showing revenues earned by the business, the expenses incurred
in earning the revenues, and operating profit or loss.
C. a financial report showing the assets, liabilities and equity of an enterprise on a specific
date.
D. a financial statement that reports the cash inflows and outflows for a period.

40. Dividend payments to owners should be classified as cash outflows for

A. operating activities
B. financing activities
C. investing activities
D. operating activities or financing activities provided the classification is consistent from
period to period.

41. Which of the following is not a financing activity?

A. Cash proceeds from issuing shares or other equity instruments
B. Cash payments by a lessee for the reduction of the outstanding liability relating to the
finance lease
C. Cash repayments of amount borrowed.
D. Cash advances and loans made by financial institutions.

42. Which of the following information would be added back to the profit when reporting cash flow
from operating activities using the indirect method?
A. excess treasury share acquisition over sales proceeds.
B. amortization of patents
C. bond premium amortization
D. gain from debt restructuring

43. The analysis of the statement of financial position is useful in assessing the liquidity, which
is the ability to
A. satisfy short-term obligations.
B. maintain profitable operations.
C. maintain past levels of preferred and ordinary dividends.
D. survive major economic downturn.
44. Which of the following is not required to be presented as minimum information on the face of
the financial position?
A. Investment property C. Biological assets
B. Inventories D. Contingent liabilities

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45. What is the usual presentation of the balance sheet in the Philippines?
A. Current assets plus noncurrent assets minus current & noncurrent liabilities is equal
to equity.
B. Noncurrent assets before current assets, noncurrent liabilities before current liabilities
and equity after liability.
C. Equity before assets and liabilities, noncurrent liabilities before current liabilities.
D. Current assets before noncurrent assets, current liabilities before noncurrent liabilities
and equity after liabilities.

PROBLEMS
46. Fita Company provided the following information on December 31, 2020:
Cash P 300,000
Deferred tax asset 150,000
Bank overdraft 250,000
Inventory 1,000,000
Accounts receivable 1,200,000
Prepaid rent 100,000
Financial assets at FV through P/L 200,000
Financial assets at FV through OCI 800,000
What amount should be reported as current assets on December 31, 2020?

47. Rebisco Corp. provided the following data on December 31, 2020:
Cash (including cash set aside for bond retirement in 2024,
P1,000,000) 5,000,000
Financial assets at fair value (including long-term investment of
P500,000 in ordinary shares of Caramel Corp.) 2,000,000
Inventories (including goods received on consignment of P200,000) 800,000
Prepaid expenses (excluding P50,000 long-term security deposit) 100,000
PPE 10,000,000
Goodwill 1,000,000
Total assets 18,900,000
What is the total amount of current assets on December 31, 2020?

Data for 48 and 49

The accounts and balances shown below were taken from Hiro Co.’s trial balance on December
31, 2020. All adjusting entries have been made. Wages payable – P250,000; Cash – P175,000;
Bonds payable – P600,000; Cash dividends payable – P140,000; Prepaid rent – P136,000;
Inventory – P820,000; Investment in sinking fund- P525,000; Investment at FV through profit or
loss – P153,000; Premium on bonds payable – P48,000; Investment in subsidiary – P1,020,000;
Taxes payable – P228,000; Accounts payable – P248,000; Accounts receivable – P366,000;
Property, Plant and Equipment- P1,200,000; Patents – P150,000; Accumulated depreciation-
PPE- P400,000; Land held for future use – P900,000.
48. How much should be reported as Hiro Co.’s current and non-current assets on
December 31, 2020?

49. How much should be reported as Hiro Co.’s current and non-current liabilities on
December 31, 2020?

50. Cream-O Corp. trial balance contained the following account balances on December 31,
2020:
Equipment and furniture, net P 990,000 Investment to profit or loss securities P150,000
Intangible assets, net 120,000 Prepaid insurance 30,000
Accounts receivable 480,000 Cash and cash equivalents 330,000
Land (held for capital appreciation) 1,200,000 Inventory 900,000
How much is the total current assets in Cream-O’s December 31, 2020 balance sheet?

51. Oreo Company began operations on Jan. 1, 2020 with P1,000,000 from issuance of shares
and borrowed funds of P450,000. Net income for 2020 was P300,000 and Oreo paid a P225,000
cash dividend on Dec. 19, 2020. At Dec. 31, 2020, the liabilities had increased to P597,000. In
Oreo’s balance sheet, how much is to be reported as its total assets?

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52. A draft of Skyflakes Company’s 2020 statement of financial position reported a total asset of
P1,083,250 of which includes the following: Treasury shares at cost – P30,000; Unamortized
patents- P14,000 and cash surrender value of life insurance – P17,125. At what amount should
the total assets be correctly reported on the statement of financial position?

53. Coke Company prepared a draft of its 2020 statement of financial position. The draft reported
current liabilities totaling P2,000,000. However, none of the following items were included in this
preliminary total at December 31, 2020:
Accounts payable P300,000
Bonds payable due in 2021 500,000
Unamortized discounts on Bonds payable 80,000
Dividends payable 160,000
Notes payable due in 2022 400,000
At which amount should Coke’ current liabilities be reported correctly reported on
December 31, 2020?

54. Royal Corp. had the following items on December 31, 2020:
Accounts payable P 330,000
Unsecured notes, 9%, due on July 1, 221 800,000
Accrued liabilities 210,000
Provision for litigation 2,700,000
Deferred tax liability 150,000
Bonds payable, 5%, due on March 31, 2021 6,000,000
Royal’s legal counsel expects the suit to be settle in 2021 and estimated that the company is
liable at P2,700,000. The deferred tax liability is expected to be reversed in 2022. What should
be reported as current liabilities as of December 31, 2020?

55. On July 1, 2017, Sprite Inc. acquired machinery worth P2,500,000 from 7-Up Corp. Terms of
the contract calls for a down-payment of P500,000 and signing a 2-year 10% note payable for the
balance. Interest is payable quarterly. The existing loan agreement does not carry a provision to
refinance. During September, Sprite was experiencing financial difficulty and was unable to pay
periodic interest. What amount of current liability should Sprite Inc. report in its December
31, 2017 balance sheet assuming 7-Up Company agreed on Jan. 3, 2018 not to demand
payment as consequence of the breach?

56. Merinda Company adjusted trial balance at Dec. 31, 2020 includes the following account
balances:
Ordinary share capital, P3 par P3,000,000
Subscription receivable due 2021 300,000
Share premium 4,000,000
Treasury share at cost 250,000
Net unrealizable loss on equity securities @ OCI 100,000
Reserve for uninsured earthquake losses 750,000
Accumulated profits 1,000,000
Ordinary share subscribed 500,000
Reserve for treasury share 250,000
What amount should Merinda reported as total shareholders’ equity in its Dec. 31, 2020
balance sheet?

Data for 57 and 58

Pepsi Company provided the following data on December 31, 2020:
Cash P1,800,000 Accounts payable, net of debit balance of P50,000 P2,450,000
Accounts receivable 3,000,000 Interest payable 150,000
Inventory 1,900,000 Income tax payable 300,000
Prepaid expense 100,000 Mortgage payable, due in 4 annual installments 2,000,000
The cash of P1,800,000 included cash in bank of P1,650,000, a customer check of P100,000
marked as NSF and an employee IOU of P50,000. The cash in bank of P1,650,000 is the balance
per bank statement. On Dec. 31, 2020, the outstanding check amounted to P250,000. The
accounts receivable included the ff:
Customer's debit balances P1,600,000
Advances to subsidiary 400,000

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Advances to suppliers 200,000

Receivable from officers (due currently) 300,000
Allowance for doubtful accounts (100,000)
Selling price of merchandise invoiced at 120% of costs, undelivered
and excluded from inventory 600,000
57. What amount should be reported as total current assets?
58. What amount should be reported as current liabilities?

59. Root Beer Company provided the following information at year-end:

Machinery P35,000,000 Intangible assets P7,000,000
Land 20,000,000 Accounts payable 8,000,000
Cash 5,000,000 Wages payable 2,000,000
Accounts receivable 20,000,000 Short-term notes payable 3,000,000
Allowance for bad debts 1,000,000 Bonds payable 40,000,000
Inventories 13,000,000 Premium on Bonds Payable 3,000,000
Prepaid insurance 2,500,000
What is the working capital?

60. The Sparkle Inc. is a defendant of a lawsuit in 2020. Based on the lawyer’s estimate, the
company will be found liable and the amount to be settled is at an amount of P400,000 but
somehow would range to P200,000 to P400,000. On February 28, 2017, the company settled an
actual amount of P500,000. If the financial statement was issued on March 31, 2021, how
much should be the liability related to the lawsuit to be reported on its December 31, 2020?

61. Jollibee Company keeps limited records. Its assets and liabilities at the beginning and end of
the current year are as follows:
Beginning End
Cash in bank P30,000 P(5,000)
Accounts receivable 50,000 70,000
Merchandise inventory 100,000 80,000
Accounts payable 40,000 20,000
Notes payable-bank 20,000 25,000
Office equipment (net) 80,000 60,000
During the year, the owner withdraw cash of P12,000 and made additional investments of
P50,000. The profit (loss) of Jollibee Company for the year is

62. The net sales of McDo Mfg. Company in 2020 is P5,800,000. The cost of goods manufactured
is P4,800,000. The beginning inventories of goods in process and finished goods are P820,000
and P650,000, respectively. The ending inventories are: goods in process- P750,000; finished
goods- P550,000. The selling expenses and general administrative expenses are 5% and 2.5%
of cost of sales, respectively. What is McDo’s profit for the year 2020?

63. The following items were reported on KFC Company’s statement of comprehensive income
for the year ended December 31, 2020: Legal and audit fees- P170,000; Rent expense-
P240,000; Interest expense- P210,000; Loss on sale of equipment- P35,000. The office space is
used equally by KFC’s sales and accounting departments. What amount of the above-listed
items should be classified as general and administrative expenses?

64. Chowking Company separates operating expenses in two categories; selling and general and
administrative expenses. The adjusted trial balance at December 31, 2020, included the following
expenses and loss accounts:
Interest P1,400,000
Accounting audit fees 500,000
Advertising 800,000
Freight-out 1,600,000
Product development 350,000
Loss on sale of long-term investment 100,000
Officer’s salaries 900,000
Depreciation on delivery equipment 400,000
Rent for office space 1,200,000
Sales salaries and commissions 750,000

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One-half of the rented premises is occupied by the sales department. The entity’s total selling
expenses for 2020 is:

65. The following information is given for Tokyo-Tokyo Company: Freight-in – P8,000; Purchase
returns – P12,000; Selling expenses - P600,000; Ending inventory – P320,000. The cost of
goods sold equal to 800% of selling expenses. What is the cost of goods sold?

Data for 66 and 67

Greenwich Corp. disposed of Segment X, a microchip division during 2017. The segment met the
criteria to be classified as “Held for Sale” on July 1, 2017. Segment X’s revenue from January 1
to June 30 amounted to P2,000,000 and from July 1 to November 30 (the actual disposal date)
amounted P100,000. Selling and administrative expenses from January 1 to June 30 and from
July 1 to November 30 were P1,800,000 and P300,000 respectively. Net proceeds from sale of
the segment on November 30, 2017 were P15,000,000 at which the segment’s carrying value
was P14,000,000. The company’s income tax is 30%. The company presents on the face of the
statement of comprehensive income a single-line item for discontinued operations.
66. How much is the profit (loss) from the operations of the discontinued operations?
67. How much is presented as “Discontinued Operations” on the face of the statement of
comprehensive income?

68. Lemon Company provided the following information on December 31, 2020:
Share capital P6,000,000
Share premium 3,500,000
Cumulative translation adjustment- debit 2,000,000
Changes due to translation adjustment- debit 600,000
Treasury shares (at cost) 700,000
Retained earnings 1,500,000
Cumulative unrealized gain on option contract designated as cash flow hedge 600,000
What is the shareholders’ equity on December 31, 2020?

Data for 69 and 70

The following pre-tax amounts pertain to Zarks Burger Corp. for the year ended Dec. 31, 2020:
Sales P 400,000
Selling and administrative expenses 84,000
Other income 40,000
Interest expense 4,000
Cost of goods sold 280,000
Correction of prior period error- credit 16,000
Discontinued operations- credit 40,000
Cumulative effect of change in accounting policy- debit 24,000
Retained earnings, January 1, 2020 (not restated) 1,600,000
Dividends declared 12,000
Income tax rate 30%
69. What is the company’s profit for the year ended December 31, 2020?
70. How much retained earnings would be shown on December 31, 2020?

71. The following information is available for Shakeys Company for the year ended Dec. 31, 2019.
Cash received from customers P870,000
Cash received for rent 10,000
Cash paid to suppliers and employees 510,000
Taxes paid 110,000
Gain on sale of equipment 30,000
What is the net cash flows from operating activities for 2019?

72. Pizza Hut Inc. has provided the following 2019 account balances for the preparation of the
annual statement of cash flows:
Jan. 1 Dec. 31
Accounts receivable P115,000 P145,000
Allowance of bad debts 4,000 5,000
Prepaid rent expense 62,000 41,000
Accounts payable 97,000 112,000
Pizza Hut’s profit is P750,000. What is the 2019 net cash flows from operations?

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73. Max’s Corporation reports:

Cash provided by operating activities P250,000
Cash provided by investing activities 110,000
Cash used by financing activities 140,000
Beginning cash balance 70,000
What is Max’s ending cash balance?

74. The following are the profit or loss accounts of Sunflower Company for the year ended
December 31, 2019:
Sales P4,050,000
Cost of Goods sold (2,340,000)
Gross profit P1,710,000
Gain on sale of equipment 40,000
Total Revenue P1,750,000
Operating expense
Salaries expense P560,000
Depreciation expense 70,000
Rent Expense 160,000
Loss on sale of land 50,000 (840,000)
Profit from operations P910,000
Interest expense (30,000)
Profit before tax P880,000
Income tax expense (264,000)
Profit for the year P616,000
Changes in current assets and current liabilities accounts during 2019 were as follows:
Increase(decrease)
Accounts receivable P 60,000
Merchandise inventory 50,000
Accounts payable (90,000)
Salaries payable 30,000
Interest payable 5,000
Income tax payable (25,000)
How much is the net cash flows from operating activities?

Data for items no. 75 to 77

The following is a list of items to be included in the preparation of the 2019 statement of cash
flows from the Ram Company.
Gain on retirement of bonds P92,000 Net profit P554,000
Increase in inventory 67,000 Ordinary share exchanged for land 140,000
Proceeds from sale of investment 85,000 Payment to retire bonds 370,000
Proceeds from issuance of note 250,000 Payment for purchase of equipment 394,000
Depreciation expense 107,000 Loss on sale of investments 48,000
Decrease in accounts receivable 50,000 Repurchase of treasury shares 120,000
Proceeds from issue of preference
Payment for purchase of patent 198,000 528,000
shares
Decrease in accounts payable 40,000 Amortization of discount on debt 15,000
Payment of dividends 300,000 securities at amortized cost
75. How much is the net cash flow from operating activities during 2019?
76. How much is the net cash flow from investing activities during 2019?
77. How much is the net cash flow from financing activities during 2019?

78. Rosal Inc. prepares the statement of cash flows using direct method for operating activities.
For the year ended December 31, 2019. Rosal reports the following data:
Sales on account and on notes P1,300,000
Cash sales 740,000
Decrease in accounts receivable 610,000
Increase in trade notes receivable 125,000
Increase in accounts payable 72,000
Decrease in notes payable to the bank 75,000
Increase in inventory 48,000
Cost of goods sold 975,000

Compiled by: Noel A. Bergonia Page 10 of 11

 FINANCIAL STATEMENTS
Assessment Activities

What is the amount of cash collections from customers?

Data for item nos. 79 to 81

The worksheet below presents the comparative balance sheet (in pesos) of Cherry Company on
December 31, 2021 and 2020.
2021 2020 2021 2020
Cash 4,037,500 3,500,000 Accounts payable 5,075,000 4,775,000
Accounts receivable 5,640,000 5,840,000 Income taxes payable 150,000 250,000
Inventories 9,250,000 8,575,000 Dividends payable 400,000 500,000
PPE 16,535,000 14,835,000 Lease liability 2,000,000 0
Acc. depreciation (5,825,000) (5,200,000) Ordinary shares, P10 par 2,500,000 2,500,000
Investment in associate 1,525,000 1,375,000 Share premium 7,500,000 7,500,000
Loan receivable 1,312,500 0 Retained earnings 14,850,000 13,400,000
Total assets 32,475,000 28,925,000 Total liabilities and equity 32,475,000 28,925,000

Additional information:
❖ On December 31, 2020, Cherry acquired 25% of Cashew Co.’s ordinary shares for
P1,375,000. On that date the book value of Cashew’s assets and liabilities, which
approximates the fair values, was P5,500,000. Cashew reported income of P600,000 for
the year ended December 31, 2021. No dividend was paid on Cashew’s ordinary shares
during the year.
❖ During 2021, Cherry loaned P1,500,000 to Coconut Co., an unrelated company. Cherry
made the first semi-annual principal repayment of P187,500, plus interest at 10%, on
December 31, 2021.
❖ On January 2, 2021, Cherry sold equipment costing P300,000, with carrying amount of
P175,000, for P200,000 cash.
❖ On December 31, 2021, Cherry entered into a 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.
Cherry made the first rental payment of P300,000 when due on January 2, 2022.
❖ Net income for 2021 was P1,850,000
❖ Cherry declared and paid cash dividends for 2021 and 2020 as follows:
Declared Paid Amount
2020 Dec. 15, 2020 Feb. 20, 2021 P500,000
2021 Dec. 15, 2021 Feb. 20, 2022 400,000

79. How much is the net cash inflow from operating activities?
80. How much is the net cash outflow from investing activities?
81. How much is the net cash outflow from financing activities?

- END OF ASSESSMENT -
Be blessed! ☺

“Ask and it will be given to you; seek and you will find; knock and the door will be
opened.” - Matthew 7:7

Concentrate === Pray === Achieve

/NABergonia2021

Compiled by: Noel A. Bergonia Page 11 of 11