FINANCIAL ACCOUNTING P-3

Statement of Cash Flows

Problem 1 – Operating Activities

Partial balance sheet data and additional information for Anderson Industries are given below:

Anderson Industries
Partial Statement of Financial Position
December 31, 2035 and 2034

Assets 2035 2034

Cash .............................................................................................. P 70,000 P 10,000
Accounts receivable ..................................................................... 80,000 92,000
Inventory ....................................................................................... 65,000 43,000

Liabilities
Accounts payable ......................................................................... P 95,000 P 75,000

Additional Information:
(a) Net income for 2035 was P50,000.
(b) Depreciation expense for 2035 was P25,000.

Required: Prepare the operating activities section of the statement of cash flows, using the indirect method, for the year ending
December 31, 2035.

Problem 2 – Investing and Financing Activities

Partial balance sheet data and additional information for Deloitte Industries are given below:

Deloitte Industries
Comparative Statement of Financial Position
December 31, 2035 and 2034

Assets 2035 2034

Land, buildings, and equipment ........................................................... P 325,000 P 200,000
Accumulated depreciation--buildings and equipment ......................... (75,000) (50,000)

Equities
Common stock (P25 par) ...................................................................... 300,000 200,000
Additional paid-in capital ....................................................................... 40,000 0
Retained earnings.................................................................................. 30,000 20,000

Additional information:
(a) June 15, 2035--issued 4,000 shares of common stock for cash.
(b) July 1, 2035--purchased new equipment for cash.
(c) December 31, 2035--paid cash dividends of P40,000.

Required: Prepare the investing and financing activities sections of the statement of cash flows for the year ending December 31,
2035.
Problem 3 – Statement of Cash Flows (Direct Method)

The following is a comparative balance sheet for Top Ten Clothiers Inc. for the years 2035 and 2034:

Top Ten Clothiers Inc.

Comparative Statement of Financial Position
December 31, 2035 and 2034

Assets 2035 2034

Cash ................................................................................................................. P 43,000 P 240,000
Accounts receivable ......................................................................................... 390,000 210,000
Inventory........................................................................................................... 360,000 450,000
Long-term investments .................................................................................... 0 120,000
Total assets ................................................................................................. P 793,000 P 1,020,000

Liabilities and Equities

Accounts payable ............................................................................................. P 150,000 P 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........................................................................ P 793,000 P 1,020,000

The income statement for the year ended December 31, 2035, follows:

Top Ten Clothiers

Income Statement
For the Year Ended December 31, 2035

Sales ................................................................................................................. P 1,120,000

Cost of goods sold:
Beginning inventory, January 1, 2035 ........................................................... P 450,000
Purchases........................................................................................................ 660,000
Cost of goods available .................................................................................. P 1,110,000
Less ending inventory, December 31, 2035 ................................................. 360,000 750,000
Gross profit on sales............................................................................................. P 370,000
Operating expenses .............................................................................................. 360,000
Operating income ................................................................................................. P 10,000
Other revenues and expenses:
Loss on sale of long-term investment ............................................................ (15,000)
Net loss ................................................................................................................. P (5,000)

After paying cash dividends, the decrease in retained earnings totaled P95,000. Management is alarmed by the shrinkage in the
company’s cash position during 2035.

Required: Prepare a statement of cash flows for 2035 using the direct method.
Problem 4 – Statement of Cash Flows (Direct Method)

The Sage Corporation prepared, for 2035 and 2034, the following balance sheet data:
December 31
2035 2034
Cash ................................................................................................................. P 87,375 P 63,750
Available-for-sale securities (not cash equivalents) ............................................ 17,250 105,000
Accounts receivable.............................................................................................. 90,000 86,250
Merchandise inventory ......................................................................................... 187,500 163,500
Prepaid insurance................................................................................................. 1,125 1,500
Land, buildings, and equipment .......................................................................... 1,378,875 1,087,500
Accumulated depreciation ................................................................................... (558,750) (498,750)
Total ................................................................................................................. P 1,203,375 P 1,008,750

Accounts payable .................................................................................................. P 153,375 P 236,250

Salaries payable ................................................................................................... 18,750 26,250
Notes payable--bank (current).............................................................................. 37,500 150,000
Bonds payable ...................................................................................................... 375,000 0
Common stock ...................................................................................................... 600,000 600,000
Retained earnings (deficit) ................................................................................... 18,750 (3,750)
Total ............................................................................................................. P 1,203,375 P 1,008,750

Additional information:
(a) Sold available-for-sale securities (not cash equivalents) costing P87,750 for P90,000.
(b) Equipment costing P18,750 with a book value of P3,750 was sold for P4,500.
(c) Issued 8% bonds payable at par, P375,000.
(d) Purchased new equipment for cash, P310,125.
(e) Paid cash dividends of P22,500 during the year.
(f) Net income for 2035 was P45,000.
(g) Proceeds from the notes payable were used for operating purposes.

Required: Prepare a statement of cash flows for Sage Corporation for 2035, using the indirect method.

Exercises
Problem 1

The following is a comparative balance sheet of Covey Corporation for December 31, 2035 and 2034:
December 31
2035 2034
Cash and cash equivalents .................................................................................. P 250,000 P 220,000
Accounts receivable.............................................................................................. 327,600 356,000
Inventories ............................................................................................................ 822,000 780,000
Available-for-sale securities ................................................................................. 0 200,000
Equipment ............................................................................................................. 2,400,000 2,040,000
Accumulated depreciation ................................................................................... (700,000) (760,000)
P 3,099,600 P 2,836,000

Accounts payable .................................................................................................. P 359,000 P 281,000

Bonds payable, due 2038 .................................................................................... 400,000
Common stock, P20 par ....................................................................................... 1,800,000 1,600,000
Paid-in capital in excess of par ............................................................................ 280,000 200,000
Retained earnings ................................................................................................ 660,600 355,000
P3,099,600 P2,836,000
Additional information:
(a) Net income for 2035, P545,600.
(b) Depreciation reported on income statement, P140,000.
(c) Fully depreciated equipment, no salvage value, was scrapped. Equipment was purchased for P560,000.
(d) Bonds of P400,000 were retired at their face value.
(e) 10,000 shares of common stock were issued for cash at P28 per share.
(f) Cash dividends declared and paid, P240,000.
(g) Available-for-sale securities with a book value of P200,000 were sold for P300,000.
Required: Prepare a statement of cash flows for Covey Corporation for 2035, using the indirect method.

Problem 2

The following pertains to the Spurrier Co. for the year ended December 31, 2035.
Depreciation expense ............................................................................................................. P 12,000
Issuance of common stock .................................................................................................... 105,000
Cash dividends paid ............................................................................................................... 18,600
Increase in inventory .............................................................................................................. 43,500
Decrease in accounts receivable ........................................................................................... 68,700
Decrease in accounts payable ............................................................................................... 27,600
Retirement of long-term debt ................................................................................................. 120,000
Net income .............................................................................................................................. 150,000
Proceeds from sale of equipment (P15,000 loss) ................................................................ 63,000
Purchase of equipment .......................................................................................................... 84,000
Cash and cash equivalents, beginning of year ...................................................................... 200,000

Prepare a statement of cash flows in good form using the indirect method. Calculate the cash flow to net income and cash flow
adequacy ratios for the company.

Problem 3

Atkin Corporation provides the following account balances for 2034 and 2035:

12/31/35 12/31/34
Accounts Receivable ......................................................................................... P 138,000 P 96,000
Inventory ........................................................................................................ 206,000 168,000
Accounts Payable............................................................................................... 90,000 68,000
Salaries Payable ................................................................................................ 16,000 20,000
Sales ….…… .................................................................................................... 536,000
Cost of Goods Sold ............................................................................................ 396,000
Depreciation Expense........................................................................................ 22,000
Salaries Expense ............................................................................................... 18,000
Other Expenses .................................................................................................. 56,000

Required: Prepare the operating activities section of the statement of cash flows under the indirect method.

Problem 4

Adlake Corporation provides the following account balances for 2034 and 2035:
12/31/35 12/31/34
Accounts Receivable ......................................................................................... P 70,600 P 62,400
Inventory ........................................................................................................ 148,200 158,600
Accounts Payable............................................................................................... 39,000 51,000
Short-term Notes Payable (for inventory) ......................................................... 41,600 40,000
Sales ........................................................................................................ 616,600
Cost of Goods Sold ............................................................................................ 490,000
Depreciation Expense........................................................................................ 18,200
Amortization Expense ........................................................................................ 2,600
Other Expenses .................................................................................................. 56,000
Loss on Sale of Building .................................................................................... 3,000
Gain on Sale of Investments ............................................................................. 13,000

Required: Prepare the operating activities section of the statement of cash flows under the indirect method.
 Problem 13

UR Company is preparing a forecast of its net income for the year 2023. In addition, UR plans to construct a forecasted statement
of cash flows for 2023. The balance sheet and income statement data for 2022 are presented below, as well as a forecast of the
balance sheet for 2023. Management expects sales in 2023 to rise to P6,000,000. In order to achieve this level of increase,
management estimates that operating expenses (specifically sales commissions) will rise to P410,134.

Prepare a forecasted income statement and forecasted statement of cash flows (using the indirect method) for the year ended
December 31, 2023, for UR Company. Calculate the cash flow to net income and cash flow adequacy ratios.

UR Company
Balance Sheet
December 31, 2023 (forecasted)
and
December 31, 2022

2022 2023
Cash …. ........................................................................................................ P 132,000 P 212,000
Other current assets .......................................................................................... 756,000 1,196,000
Property, plant, and equipment, net ................................................................. 440,000 852,000
Total assets ….. .................................................................................................. P 1,328,000 P 2,260,000

Accounts payable ............................................................................................... P 76,000 P 112,000

Bank loans payable ........................................................................................... 324,000 796,000
Total stockholders’ equity ................................................................................. 928,000 1,352,000
Total liabilities and equities .............................................................................. P 1,328,000 P 2,260,000

UR Company
Statement of Income
For Year Ended December 31, 2022

Sales …. ........................................................................................................ P 3,172,000

Cost of goods sold ............................................................................................. 2,532,000
Gross margin ...................................................................................................... 640,000
Depreciation expense ........................................................................................ 14,576
Other operating expenses ................................................................................. 122,684
Operating profit .................................................................................................. 502,740
Interest expense ................................................................................................ 142,740
Income before taxes .......................................................................................... 360,000
Income taxes ...................................................................................................... 108,000
Net income ........................................................................................................ P 252,000

Problem 14

EMD, Inc., has the following comparative balance sheets and income statement available for your examination:

EMD, Inc.
Balance Sheets
December 31, 2022 and 2021
(in thousands)
2022 2021
Cash …. ........................................................................................................ P 66 P 36
Accounts Receivable ......................................................................................... 138 96
Inventory ........................................................................................................ 206 168
Property, Plant, and Equipment ........................................................................ 266 246
Accumulated Depreciation ................................................................................ (70) (54)
Total Assets ........................................................................................................ P606 P492

Accounts Payable............................................................................................... P 90 P 68
Income Tax Payable ........................................................................................... 16 20
Common Stock................................................................................................... 406 326
Retained Earnings ............................................................................................. 94 78
Total Equities ..................................................................................................... P606 P492

EMD, Inc.
Income Statement
For the Year Ended
December 31, 2022
(in thousands)
Sales …. ........................................................................................................ P536
Cost of Goods Sold ............................................................................................ 396
Gross Profit ........................................................................................................ 140
Operating Expenses:
Depreciation ................................................................................................. P22
Income Taxes ............................................................................................... 18
Other ........................................................................................................ 56 96
Net Income ........................................................................................................ P 44

Additional information:
1. Fully depreciated equipment costing P6,000 was abandoned on the first day
of business of 2022.
2. A building to store materials was acquired for P26,000.
3. A stock dividend of P20,000 was delcared and distributed, as was a cash dividend of P8,000.
4. Additional stock was sold during 2022 for cash.

Prepare a statement of cash flows for EMD, Inc., for 2022 employing the indirect method of identifying cash flows from operating
activities.