I.

Multiple Choice
1. In a cash flow statement using indirect method, a decrease in prepaid expense should be
a. Reported as an outflow and inflow of cash
b. Reported as an outflow of cash
c. Deducted from net income
d. Added to net income

2. An enterprise should prepare a cash flow statement and should present it as

a. Supplementary financial statement
b. Note to financial statement
c. Supporting schedule for amount appearing as cash and cash equivalent
d. Integral part of the enterprise’s basic financial statements

3. The primary purpose of the cash flow statement is

a. To provide relevant information about cash receipts and cash payments of an enterprise during a
period
b. To help investors, creditors and other users to assess the enterprise’s ability to generate positive
future net cash flows
c. To disclose separately noncash investing and financing activities
d. To assess the ability of the enterprise to pay dividends to stockholders

4. Which classification of the cash flow arising from the proceeds from an earthquake disaster
settlement would be most appropriate?
a. Cash flows from operating activities
b. Cash flows from investing activities
c. Cash flows from financing activities
d. None of the above

5. In a cash flow statement, depreciation is treated as an adjustment to reported net earnings

because depreciation
a. Is a direct source of cash
b. Reduces reported net earnings but does not involve an outflow of cash
c. Reduces reported net earnings and involves an inflow of cash
d. Is an inflow of cash to a reserve account for replacement of assets

6. A company acquired a building, paying a portion of the purchase price in cash and issuing a
mortgage note payable to the seller for the balance. In a cash flow statement, what amount is
included in investing activities for the transaction?
a. Cash payment
b. Acquisition price
c. Zero
d. Mortgage amount

7. In a statement of cash flows (using indirect approach for operating activities), an

increase in inventories should be presented as a(n)
a. Outflow of cash
b. Inflow and Outflow of cash
c. Addition to net income
d. Deduction from net income

8. In a cash flow statement, which of the following item is reported as a cash flow from
financing activities?
a. Payments to retire mortgage note and dividend payment
b. Interest payment on mortgage note
c. Both a and b
d. None of the above

9. Cash payments to owners to acquire or redeem the enterprise’s shares are

a. Cash inflows from financing activities
b. Cash outflows for financing activities
c. Cash inflows from investing activities
d. Cash outflows for investing activities
10. In the cash flow statement, alternatively, interest received and dividend received may be
classified as cash flow from
a. Operating activities
b. Investing activities
c. Financing activities
d. Revenue activities

11. Cash payments to acquire equity investment are

a. Cash outflows for financing activities

b. Cash inflows from investing activities

c. Cash outflows for investing activities

d. Cash inflows from financing activities

12. Cash receipts from issuing shares are

a. Cash inflows from investing activities

b. Cash outflows for investing activities

c. Cash inflows from financing activities

d. Cash outflows for financing activities

13. Interest payments to lenders are classified as

a. Operating activities

b. Borrowing activities

c. Lending activities

d. Financing activities

14. Interest received is classified as cash flow from:

a. Operating activities

b. Investing activities

c. Financing activities
d. Revenue activities

15. Bank overdrafts that are repayable on demand and the bank balance often fluctuates from
positive to overdrawn shall be classified as

a. Operating activities

b. Investing activities

c. Financing activities

d. Component of cash and cash equivalent

16. 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 equivalent

17. Under IFRS, an entity can report interest paid on bank loan in the statement of cash flows

a. In operating activities

b. Either in operating activities or financing activities

c. In financing activities

d. In investing activities or financing activities

18. Under IFRS, the dividend received from shares investments can be classified as

a. Either an operating activities or financing activities

b. Either an operating activities or investing activities

c. Only as an investing activity

d. Only an operating activity

19. Under IFRS, dividend paid can be classified as

a. In operating activities
b. Either an operating activities or financing activities

c. In financing activities

d. In investing activities or financing activities

20. What is the treatment of three-month treasury bill?

a. Not reported

b. An outflow for financing activities

c. An outflow for lending activities

d. An outflow for investing activities

II.

Direction: Write O if the statement is Operating Activities, I if the statement is Investment

Activities and F is the statement is Financing Activities.

1. Cash payments to suppliers for goods and services. O

2. Cash receipts from sales of equity or debt instruments of other entities. I

3. Cash payments for future contract, forward contract, opinion contract and swap contract. I

4. Cash payments for amounts borrowed. F

5. Cash receipts from issuance of ordinary and preference shares. F

6. Cash receipts from sales of equity or debt instruments of other entities. I

7. Cash receipts and payments for securities held for trading. O

8. Cash payments to selling, administrative and other expenses. O

9. Cash payments for pensions or OPEB regardless of whether the defined benefit pension plan or
defined benefit OPEB plan is administered through a trust that meets the specified criteria of either
GASB 68, paragraph 4 or GASB 75, paragraph 4, respectively. O

10. Cash receipts for future contract, forward contract, opinion contract and swap contract. I
III. Problem
The schedule below shows the account balances of STAN BINI CO. at the beginning and end of the
year ended December 31, 2022:

DEBITS Dec. 31, 2022 Dec. 31, 2021

Cash and cash equivalents ₱666,000 ₱150,000

Investment in trading securities 30,000 120,000

Accounts Receivable 444,000 300,000
Inventories 873,000 900,000
Prepaid insurance 7,500 6,000
Land and building 585,000 585,000
Equipment 936,000 510,000
Discount on bonds payable 25,500 27,000
Treasury shares 15,000 30,000
Cost of goods sold 1,617,000
Selling and general expenses 861,000
Income taxes 105,000
Unrealized loss on trading securities 12,000
Loss on sale of equipment 3,000
Total debits P6,180,000 P2,628,000

CREDITS
Allowance for bad debts P 24,000 P 15,000
Accumulated depreciation – Building 78,750 67,500
Accumulated depreciation – Equipment 137,250 82,500
Accounts payable 165,000 180,000
Notes payable – current 210,000 60,000
Accrued expenses payable 54,000 26,100
Income taxes payable 105,000 30,000
Unearned revenue 3,000 27,000
Notes payable – noncurrent 120,000 180,000
Bonds payable 750,000 750,000
Deferred tax liability 141,000 159,900
Ordinary shares, P10 par 1,078,200 600,000
Retained earnings appropriated for treasury shares 15,000 30,000
Retained earnings appropriated for possible
building expansion 114,000 69,000
Unappropriated retained earnings 103,800 336,000
Share premium 348,000 15,000
Sales 2,697,000
Gain on sale of trading securities 36,000
Total Credits P6,180,000 P2,628,000

Additional information:
a. All purchases and sales were on account.
b. Equipment with an original cost of P45,000 was sold for P25,000
c. Selling and general expense include the following:
Building depreciation P11,250
Equipment depreciation 75,750
Bad debt expense 9,000
Interest expense 54,000
d. A six-month note payable for P150,000 was issued in connection with the purchase of new
equipment.
e. The noncurrent note payable requires the payment of P60,000 per year, plus interest until paid.
f. Treasury shares were sold for P3,000 more than their cost.
g. During the year, a 30% stock dividend was declared and issued. At that time, there were 60,000 of
P10 par ordinary shares outstanding. However, 600 of these shares were held as treasury shares at
that time and were prohibited from participating in the stock dividend. Market value of ordinary
shares was P50 per shares when the stock dividend was declared.
h. Equipment was overhauled, extending its useful life, at a cost of P15,000. The cost was debited
to Equipment.
Based on the given data, calculate the following:
1. Net income for 2022
a. 132,000 c. 142,000
b. 135,000 d. Cannot be determined
2. Cash dividends declared and paid during 2022
a. 0 c. 24,000
b. 262,800 d. 25, 200
3. Proceeds from issuance of ordinary shares during the year
a. 330,000 c. 300,000
b. 630,000 d. 600,000
4. Proceeds from sale of trading securities
a. 114,000 c. 42,000
b. 112,000 d. Cannot be determined
5. Accumulated depreciation of equipment sold
a. 17,000 c. 27,000
b. 21,000 d. 45,000
6. Cash paid for purchase of equipment
a. 300,000 c. 318,000
b. 450,000 d. 306,000
7. Proceeds from sale of treasury shares
a. 15,000 c. 18,000
b. 13,000 d. 0
8. Net cash provided by operating activities
a. 249,000 c. 138,000
b. 252,000 d. 276,000
9. Net cash used in investing activities
a. 296,000 c. 262,000
b.339,000 d. 0
10. Net cash provided by operating activities
a. 684,000 c. 564,000
b. 612,000 d. 528,000

Solutions:
1.
Sales 2,697,000
Gain on sale of trading securities 36,000
Cost of goods sold (1,617,000)
Selling and general expenses (861,000)
Income taxes (105,000)
Unrealized loss on trading securities (12,000)
Loss on sale of equipment (3,000)
Net income 135,000

2.
Unappropriated retained earnings, Dec. 31, 2021 336,000
Net income 135,000
Decrease in appropriation for treasury shares 15,000
Increase in appropriation for possible
building expansion (45,000)
Stock dividend declared (60,000 issued – 600
Treasury = 59,400 outs. X 30% x 10) (178,200)
Remaining unappropriated retained earnings 262,800
Unappropriated retained earnings,
Dec. 31, 2018, including net income 2022 (238,800)
Assumed cash dividends declared and
paid during 2022 24,000

3.
Increase in ordinary shares 478,200
Less: Stock dividend (P10 x 59,400 x 30%) 178,200
Par value of additional shares issued in 2022 300,000

Increase in share premium 333,000

Less: Share premium from resale treasury
share at more than cost (3,000)

Proceeds from issuance of ordinary shares

(330K + 300k) 630,000

4.
Net decrease in investment in trading
securities 90,000
Less: Unrealized loss on trading securities 12,000
CV of trading securities sold 78,000
Add: Gain on sale of trading securities 36,000
Proceeds from sale of trading securities 114,000

5.
Proceeds from from sale of equipment 25,000
Add: Loss on sale of equipment 3,000
BV of equipment sold 28,000
Cost of equipment sold 45,000
Acc. Dep of equipment sold 17,000

6.
Net increase in equipment 426,000
Sale of equipment 45,000
Overhaul of equipment (15,000)
Purchase of equipment 456,000
Less: Note payable issued 150,000
Cash paid 306,000

7.
Cost of treasury shares sold (30K – 15k) 15,000
Share premium from sale of treasury shares 3,000
Proceeds from sale of treasury shares 18,000

8.
Net income 135, 000
Depreciation expenses 87,000
Loss on sale of equipment 3,000
Unrealized loss on trading securities 12,000
Amort. of bond discount 1,500
Gain on sale of trading securities (36,000)
Proceeds from sale of trading
securities 114,000
Decrease in deferred tax liability (18,900)
Increase in net accounts receivable (135,000)
Decrease in inventories 27,000
Increase in prepaid insurance (1,500)
Decrease in accounts payable (15,000)
Increase in accrued expenses
payable 27,900
Increase in income taxes payable 75,000
Decrease in unearned revenue (24,000)
Net cash provided by operating
activities 252,000
9.
Purchase of equipment (306,000)
Overhaul of equipment (15,000)
Sale of equipment 25,000
Net cash used in investing
activities (296,000)

10.
Payment of cash dividends (24,000)
Retirement of notes payable (60,000)
Sale of treasury shares 18,000
Issuance of ordinary shares 630,000
Net cash provided by financing
activities 564.000