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Chapter 6
Statement of Cash Flows

NAME: Date:
Professor: Section: Score:

QUIZ 1:

1. The net cash flow from operations must be reported using the direct method.

2. The direct method is generally favored by analysts and other users of cash flow statements.

3. Noncash items, such as depreciation expense, must be added to net income to arrive at net cash
provided by (used in) operating activities when the indirect method is used.

4. According to PAS 7 Statement of Cash Flows, an entity shall disclose the components of cash and
cash equivalents and shall present a reconciliation of the amounts in its statement of cash flows
with the equivalent items reported in the statement of financial position.

5. When using the indirect method, losses are subtracted from net income in computing cash flow
from operations.

6. The indirect method of reporting net cash flow from operations shows the operating cash
receipts and cash payments.

7. All transactions with investment securities, held for trading securities, FVOCI securities, and
amortized cost securities are reported in the investing section of the statement of cash flows.

8. The receipt of dividends should be classified as an operating activity only, while the payment of
dividends is to be classified as a financing activity only according to PAS 7.

9. When the indirect method is used, separate disclosure of interest paid and income taxes paid is
required.

10. Net cash provided by (used in) operating, financing, and investing activities are combined to
derive the amount of cash and cash equivalents at the end of the year.

“Be strong and courageous. Do not fear of be in dread of them, for it is the Lord your
God who goes with you. He will not leave you or forsake you.” (Deuteronomy 31:6)
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ANSWERS TO QUIZ 1:
1. FALSE 6. FALSE
2. TRUE 7. FALSE
3. TRUE 8. FALSE
4. TRUE 9. TRUE
5. FALSE 10. FALSE
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NAME: Date:
Professor: Section: Score:

QUIZ 2:
1. Stiggins Corporation had the following account balances for 2002:
31-Dec 1-Jan
Accounts Payable 67,200 58,200
Prepaid Rent Expense 24,600 37,200
Accounts Receivable (net) 84,000 66,600

Stiggins' 2002 profit is ₱450,000. What amount should Stiggins include as net cash provided by
operating activities in its 2002 statement of cash flows?
a. 436,200 b. 445,200 c. 453,600 d. 454,200

2. Chow Company's 2002 income statement reported cost of goods sold as ₱135,000. Additional
information is as follows:
31-Dec-02 31-Dec-01
Inventory 30,000 22,500
Accounts Payable 13,000 19,500

If Chow uses the direct method, what amount should Chow report as cash paid to suppliers in its
2002 statement of cash flows?
a. 121,000 b. 134,000 c. 136,000 d. 149,000

Use the following for the next three questions:

Frye Company uses the direct method to prepare its statement of cash flows. The company had the
following cash flows during 2002:
Cash receipts from the issuance of ordinary shares 400,000
Cash receipts from customers 200,000
Cash receipts from dividends on long-term investments 30,000
Cash receipts from repayment of loan made to
220,000
another entity
Cash payments for wages and other operating expenses 120,000
Cash payments for insurance 10,000
Cash payments for dividends 20,000
Cash payments for taxes 40,000
Cash payment to purchase land 80,000

3. The net cash provided by (used in) operating activities is

a. 60,000 b. 40,000 c. 30,000 d. (20,000)

4. The net cash provided by (used in) investing activities is

a. 220,000 b. 140,000 c. 60,000 d. (80,000)

5. The net cash provided by (used in) all activities is

a. 580,000 b. 410,000 c. 380,000 d. (60,000)

“Trust in the Lord with all your heart and lean not on your own understanding; in all your
ways acknowledge him, and he will make your paths straight.” (Proverbs 3:5-6)
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SOLUTIONS TO QUIZ 2:
1. D

Solution:
Profit 450,000
Increase in accounts payable 9,000
Decrease in prepaid rent 12,600
Increase in accounts receivable, net (17,400)
Cash flow from operating activities 454,200

2. D

Solution:
Inventory
beg. 22,500
Net purchases (squeeze) 142,500 135,000 Cost of goods sold
30,000 end.

Accounts payable
19,500 beg.
Payments (squeeze) 149,000 142,500 Net purchases
end. 13,000

3. A (See solution below)

4. B (See solution below)

5. A

Solution:
Cash receipts from customers 200,000
Cash receipts from dividends on long-term investments 30,000
Cash payments for wages and other operating
(120,000)
expenses
Cash payments for insurance (10,000)
Cash payments for taxes (40,000)
Cash flow from operating activities 60,000
Cash receipts from repayment of loan made to another
220,000
entity
Cash payment to purchase land (80,000)
Cash flow from investing activities 140,000
Cash receipts from the issuance of ordinary shares 400,000
Cash payments for dividends (20,000)
Cash flow from financing activities 380,000
Net cash flows for the period 580,000
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NAME: Date:
Professor: Section: Score:

QUIZ 3: LONG QUIZ

1. The movements in the cash account of NONCHALANT COOL Co. during 20x2 are shown
below.
Cash
beg. 200
Sales 6,000 3,800 Purchases
Interest income 20 1,200 Operating expenses
Rent income 270 30 Interest expense
Dividend income 40 70 Income taxes
Held for trading securities 800 100 Investment in FVOCI
Sale of old building 520 1,100 Purchase of equipment
Collection of non-trade note 60 130 Loan granted to employee
Proceeds from loan with a bank 1,600 240 Payment of loan borrowed
Issuance of shares 970 200 Reacquisition of shares
90 Dividends
3,520 end.

Requirement: Prepare the statement of cash flows of NONCHALANT COOL Co. for the year ended
December 31, 20x2. (Use Option 1 in classifying cash flows from operating activities.)

2. IMPECCABLE FLAWLESS Co. had the following information during 20x2:

Accounts receivable, January 1, 20x2 1,200

Accounts receivable, December 31, 20x2 800
Sales on account and cash sales 16,000
Bad debts expense 400
Accounts payable, January 1, 20x2 700
Accounts payable, December 31, 20x2 400
Cost of sales 8,000
Increase in inventory 1,800
Operating expenses on accrual basis 2,440
Increase in accrued payables for operating expenses 820
Decrease in prepaid operating expenses 780
Property, plant, and equipment, January 1, 20x2 3,600
Property, plant, and equipment, December 31, 20x2 5,400

Additional information:
a. There were no write-offs of accounts receivable during the year.
b. Equipment with an accumulated depreciation of ₱400 was sold during the year for ₱240
resulting to a gain on sale of ₱30.

Requirements: Compute for the following:

(a) cash receipts from customers,
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(b) cash payments to suppliers,

(c) cash payments for operating expenses, and
(d) cash payments for acquisition of property, plant, and equipment.

3. DERISION OBJECT OF RIDICULE Co. has the following information as of December 31, 20x2:
Jan. 1 Dec. 31
Accounts receivable 8,000 10,000
Allowance for bad debts (200) (500)
Prepaid rent 1,920 1,600
Accounts payable 3,400 4,400

DERISION reported profit of ₱4,400 for the year, after depreciation expense of ₱100, gain on sale of
equipment of ₱120, and restructuring and other provisions of ₱200. None of the provisions
recognized during the period affected cash.

Requirement: Compute for the cash flow from operating activities using the indirect method.

4. TRAVAIL HARD LABOR Co. had the following information for 20x2:
a. Acquired 3-month treasury bills for ₱100,000.
b. Acquired equipment with a purchase price of ₱2,000,000 by paying 20% in cash and issuing
a note payable for the balance. There were no payments made on the note during the year.
c. Acquired land with fair value of ₱1,600,000 by issuing shares with aggregate par value of
₱1,200,000. The excess is credited to share premium.
d. Extended a ₱800,000 loan to a director.
e. Borrowed ₱640,000 from a bank. Used the cash proceeds as follows: ₱400,000 for additional
working capital and ₱240,000 to settle scrip dividends declared in 20x1.
f. Settled an outstanding note payable by issuing shares with aggregate par value of ₱400,000.
Share premium resulted from the transaction amounted to ₱140,000.

Requirements: Compute for the net cash flows from (used in) (a) investing activities and (b) financing
activities.

“Again, I tell you that if two of you on earth agree about anything you ask for, it will be
done for you by my Father in heaven. For where two or three come together in my
name, there am I with them.”
(Matthew 18:19-20)

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SOLUTIONS TO QUIZ 3:

1. Solution:

NONCHALANT COOL Company

Statement of cash flows
For the year ended December 31, 20x2
Cash flows from operating activities
6,000
Cash receipts from customers
20
Cash receipts for interest income
270
Cash receipts for rent income
40
Cash receipts for dividend income
(3,800)
Cash paid to suppliers
(1,200)
Cash paid for operating expenses
1,330
Cash generated from operations
(30)
Interest paid
(70)
Income taxes paid
800
Cash receipt from sale of held for trading securities
2,030
Net cash from operating activities

Cash flows from investing activities

(100)
Cash payment for acquisition of investment in FVOCI
520
Cash receipt from sale of old building
(1,100)
Cash payment for acquisition of equipment
60
Cash receipt from collection of loan granted
(130)
Cash payment for loan granted
(750)
Net cash used in investing activities

Cash flows from financing activities

1,600
Cash proceeds from loan borrowed
(240)
Cash payment for loan borrowed
970
Cash proceeds from issuance of share capital
(200)
Cash payment for acquisition of treasury shares
(90)
Cash payment for dividends
2,040
Net cash from financing activities
3,320
Net increase in cash and cash equivalents
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200
Cash and cash equivalents, beginning
3,520
Cash and cash equivalents, end

2. Solutions:

Requirement (a): Cash receipts from customers

Accounts receivable
Jan. 1, 20x2 1,200 - Write-offs
Collections of accounts
Sales 16,000 16,400 receivables (squeeze)
800 Dec. 31, 20x2

Requirement (b): Cash payments to suppliers

Inventory
Jan. 1, 20x2 -
Net purchases (squeeze) 9,800 8,000 Cost of sales
1,800 Dec. 31, 20x2

Accounts payable
700 Jan. 1, 20x2
Payments for purchases on
account (squeeze) 10,100 9,800 Net purchases (accrual)
Dec. 31, 20x2 400

Requirement (c): Cash payments for operating expenses

Prepaid expense / Accrued expense
Prepaid expense, beginning 780 - Accrued expense, beg.
Cash paid for operating expenses
(squeeze) 840 2,440 Operating expense (accrual basis)
Accrued expense, end 820 - Prepaid expense, end

Requirement (d): Cash payments for acquisition of PPE

The entry for the sale of equipment is re-constructed as follows:
20x2 Cash on hand (given) 240
Accumulated depreciation (given) 400
Equipment (squeeze) 610
Gain on sale (given) 30
Property, plant and equipment
Jan. 1, 20x2 3,600
Historical cost of equipment sold (see
Acquisition of PPE (squeeze) 2,410 610 journal entry above)
5,400 Dec. 31, 20x2

3. Solution:

Cash flows from operating activities

Profit 4,400
Adjustments for:
Depreciation expense 100
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Gain on sale of building (120)

Restructuring and other provisions 200
4,580
Increase in accounts receivable, net
(1,700
[(5,000 – 250) – (4,000 – 100)] )
Decrease in prepaid rent 320
Increase in accounts payable 1,000
Net cash from operating activities 4,200

4. Solution:

Cash flows from investing activities

Cash payment for acquisition of equipment (2M x 20%) (400,000)
Cash proceeds of loan granted to officer (800,000)
(1,200,000
Net cash used in investing activities )

Cash flows from financing activities

Cash receipt from borrowings 640,000
Cash payment for dividends (240,000)
Net cash used in financing activities 400,000