CONCEPTUAL FRAMEWORKS AND ACCOUNTING STANDARDS - REVIEWER

BACHELOR OF SCIENCE IN ACCOUNTANCY 2-1

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES – TAGUIG
PROF. U.C. VALLADOLID

MODULE 6 – STATEMENT OF CASH FLOWS

THEORIES AND PROBLEMS

ADIAEN, Carmelyn D.
1. Why is retrospective treatment of a change in accounting estimate prohibited?
a. Change in accounting estimate is a normal recurring correction or adjustment which is
the natural result of the accounting process.
b. The retrospective treatment for any type of presentation is not allowed.
c. Retrospective treatment of a change in accounting estimate is prohibited under existing
standards.
d. The existing standard is silent on the issue
ADRIANO, Glecy C.
2. When an entity purchased a three-month Treasury Bill, how would the purchase be treated in
preparing the statement of cash flows?
a. Not reported
b. An outflow for financing activities
c. An outflow for lending activities
d. An outflow for investing activities
ATONG, Jeahana Bairasha H.
3. The primary purpose of a Statement of Cash Flows is to provide relevant information about:
a. Differences between net income and associated cash receipts and disbursements.
b. An enterprise's ability to generate future positive net cash flows.
c. The cash receipts and cash disbursements of an enterprise during a period.
d. An enterprise's ability to meet cash operating needs.
BALILING, Irish Sofiah R
4. In a Statement of Cash Flows, which of the following items is reported as a cash outflow from
financing activities?
I. Payments to retire mortgage notes;
II. Interest payments on mortgage notes;
III. Dividend payments.
a. I, II, and III.
b. II and III.
c. I only.
d. I and III.
BARBAS, Bernadette C.
5. Cash flows relating to assets held for rental to others are classified as
a. Operating
b. Investing
c. Financing
d. Either operating or investing
BATISLA-ON, Melchor A.
6. Cash flow is based upon:
a. Cash basis of accounting
b. Accrual basis of accounting
c. Credit basis of accounting
d. None of the above
BERGADO, Fiel Olin D
7. 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 equivalents
BIGAY, Jackielou S.
8. Interest received is classified as cash flow from:
a. Operating activities
b. Investing activities
c. Financing activities
d. Component of cash and cash equivalents
BOLAÑOS, Maria Magdaline A.
9. Mend Co. purchased a three-month US Treasury bill. Mend's policy is to treat as cash equivalents
all highly liquid investments with an original maturity of three months or less when purchased. How
should this purchase be reported in Mend's statement of cash flows.?
a. As an outflow from operating activities.
b. As an outflow from investing activities.
c. As an outflow from financing activities.
d. Not reported.

Reason: The statement of cash flows is required to be prepared based on inflows and outflows of cash
and cash equivalents during the period. The purchase of a cash equivalent using cash is not an outflow of
cash and cash equivalents; it is merely a change in the composition of cash and cash equivalents. Cash
has decreased and cash equivalents have increased, but total cash and cash equivalents are unchanged.
Therefore, this purchase is not reported in the statement of cash flows.
BONAGUA, Khyla Alexandrei Q.
10. Which of the following should be reported when preparing a statement of cash flows?
I. Conversion of long-term debt to common stock
II. Conversion of preferred stock
a. Neither I nor II
b. II only
c. Both I and II
d. I only
CADAEG, Lia Desiree C.
11. Cash flow example from an operating activity is:
a. Purchase of Own Debenture
b. Sale of Fixed Assets
c. Interest Paid on Term-deposits by a Bank
d. Issue of Equity Share Capital
CAPALAD, Ma. Alexandra Nicole H.
12. Which item comes under financial activities in cash flow?
a. Redemption of Preference Share
b. Issue of Preference Share
c. Interest Paid
d. All the above
CARPIO, Princess Sharmaine Q.
13. What is the effect of paying loan principal on cash flow and profits?
a. On profit – Decrease; On cash – Decrease
b. On profit – Decrease; On cash – None
c. On profit – Increase; On cash – Decrease
d. On profit – None; On cash - Decrease
CUERDO, Kristine C
14. Which of the following would reduce the cash balances of a business and not reduce the profit?
a. Distribution costs
b. Dividends paid
c. Interest paid
 d. Wages paid
DEL ROSARIO, Ma. Reimilyn M.
15. The following are categories required for the Statement of Cash Flow except?
a. Net cash inflow or outflow from Operating Activities
b. Effects of Foreign Currency Translation
c. Net cash inflow or outflow from Investing Activities
d. None of the above
DELA CRUZ, Kimberly E.
16. Which of the following is incorrect about the statement of cash flows?
a. It provides information about cash receipts and cash payments of an entity during a
period.
b. It reconciles the ending cash account balance to the balance per the bank statement.
c. It is the fourth basic financial statement.
d. It provides information about the operating, investing, and financing activities of the
business.
DELOS SANTOS, Mary Rose L.
17. Dividend payments to shareholders are classified as
a. Cash outflows for investing activities
b. Cash inflows from investing activities
c. Cash inflows from financing activities
d. Cash outflows for financing activities
DISOMIMBA, Jehanisah B.
18. Cash receipts from royalties and commissions are
a. Cash outflows for operating activities
b. Cash inflows from operating activities
c. Cash inflows from investing activities
d. Cash outflows for financing activities
EMBESTRO, Naida Alexis A.
19. Interest payments to lenders are classified as:
a. Operating Activities
b. Borrowing Activities
c. Lending Activities
d. Financing Activities
ENORE, Ronalyn M.
20. Bank overdrafts that are repayable on demand and the bank balance often fluctuates from positive
overdrawn shall be classified as
a. Operating Activities
b. Investing Activities
c. Financing Activities
d. Component of Cash and Cash Equivalents

GIERZA, Carol B.
21. Cash flows arising from trading securities are classified as:
a. Operating Activities
b. Investing Activities
c. Financing Activities
d. Not reported in the cash flow statement
GONZALES, Jamila Marie P.
22. Noncash investing and financing activities are:
a. Reported only if the direct method is used
b. Reported only if the indirect method is used
c. Disclosed in a note or separate schedule
 d. Not reported

23. Ibarra Company had net cash provided by operating activities of $351,000; net cash used by investing
activities of $420,000; and cash provided by financing activities of $250,000. New England's cash balance
was $27,000 on January 1. During the year, there was a sale of land that resulted in a gain of $25,000, and
proceeds of $40,000 were received from the sale. What was New England's cash balance at the end of the
year?

a. $27,000
b. $40,000
c. $208,000
d. $248,000

24. Labuzon Company is preparing its Statement of Cash Flows for the year. Abbott's cash disbursements
during the year included the following:
· Payment of interest on bonds payable $500,000
· Payment of dividends to stockholders $300,000
· Payment to acquire 1,000 shares of Marks Co. common stock $100,000
What should Abbott report as total cash outflows for financing activities in its Statement of Cash Flows?

a. 300,000
b. 800,000
c. 900,000
d. 600,000
25. Liberato Company calculated the following data for the period:
● Cash received from customers $25,000
● Cash received from sale of equipment $1,000
● Interest paid to bank on note $3,000
● Cash paid to employees $8,000

What amount should the company report as net cash provided by operating activities in its Statement of Cash
Flows?
a. $14,000
b. $15,000
c. $18,000
d. $26,000

26. Malaga Company have the following information:

● Cash paid to suppliers = $490,000
● Decrease in Inventory = $30,000
● Increase in Accounts Payable = $25,000

What is the Cost of Goods Sold?

a. $545,000
b. $654,000
c. $565,000
d. $520,000
27. Malit Corporation had the following account balances for 2023:
31-Dec 1-Jan
Accounts Payable 67,200 58,200
Prepaid Rent Expense 24,600 37,200
Accounts Receivable (net) 84,000 66,600
Malit 2023 profit is P450,000. What amount should Malit 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

28. Marange Company's 2022 income statement reported the cost of goods sold as P135,000.
Additional information is as follows:
31-Dec-22 31-Dec-21
Inventory 30,000 22,500
Accounts Payable 13,000 19,500
If Marange Company uses the direct method, what amount should Chow report as cash paid to suppliers in
its 2022 statement of cash flows?
a. 121,000
b. 134,000
c. 136,000
d. 149,000

29. Masilang Company provided the following data for the year:
Cash balance, beginning of the year 1,300,000
Cash flow from financing activities 1,000,000
Cash flow from operating activities 400,000
Cash flow from investing activities (1,500,000)
Total shareholder’s equity, beginning of the year 2,000,000
What is the cash balance at the end of the current year?

a. 1,200,000
b. 1,600,000
c. 1,400,000
d. 1,700,000

30. On December 31, 2022, Mendoza Company had the following balances in the accounts maintained at
First Bank:
Checking account #101 1,750,000
Checking account #201 (100,000)
Time deposit 250,000
Money market placement 1,000,000
90-day treasury bill, due february 28, 2021 500,000
180-day treasury bill, due March 15, 2021 800,000
The entity classified investments with original maturities of three months or less as cash equivalents.
On December 31, 2022, what amount should be reported as cash and cash equivalents?

a. 3,400,000
b. 2,000,000
c. 2,400,000
d. 3,200,000

31. Montemayor Inc. reported net income of P3,000,000 for the current year. Changes occurred in several
balance sheet accounts as follows:
Equipment 250,000 increase
Accumulated depreciation 400,000 increase
Note payable 300,000 increase
 During the current year, Montemayor sold equipment costing P250,000, with accumulated
depreciation of P120,000, for a gain of P50,000. In December of the current year, Montemayor
purchased equipment costing P500,000 with P200,000 cash and a 12% note payable of P300,000.
What amount should be reported as net cash used in investing activities?
a. 20,000
b. 120,000
c. 220,000
d. 350,000

32. Obane reported a net profit of P3,000,000 for the current financial year. Changes occurred in the
following balance sheet accounts:

Equipment 250,000 increase

Accumulated depreciation 400,000 increase
Note payable 300,000 increase

Obane sold equipment worth P250,000 in the year, with accumulated depreciation of P120,000, for a
gain of P50,000. Obane purchased equipment worth P500,000 in December of this year with
P200,000 cash and a 12% note payable of P300,000. What amount should be reported as net cash
provided by operating activities?

a. 3,400,000
b. 3,470,000
c. 3,520,000
d. 3,570,000

33. Pagayunan company is preparing its year-end cash flow statement using the indirect method. During the
year, the following transactions occurred:

Dividends paid P300,000

Proceeds from the issuance of common stock P250,000
Borrowings under a line of credit P200,000
Proceeds from the issuance of convertible bonds P100,000
Proceeds from the sale of a building P150,000

What is the company's increase in cash flows provided by financing activities for the
year? a. P50,000
b. P150,000
c. P250,000
d. P550,000

34. Palaspas Inc. acquires a forklift from Israela Co. for P30,000. The terms require Palaspas to pay P3,000
down and finance the remaining P27,000. On March 1, year 1, Palaspas paid P3,000 down and accepted
delivery of the forklift. Palaspas signed a note that requires Palaspas to pay principal payments of P1,000 per
month for 27 months beginning July 1, year 1. What amount should Palaspas report as an investing activity
in the statement of cash flows for the year ended December 31, year 1?
a. 3,000
b. 9,000
c. 12,000
d. 30,000
35. Panganiban Company provided the following data for the preparation of the statement of cash flows for
the current year:
Dividends declared and paid 800,000
Net cash used in investing activities (2,500,000)
Net cash used in financing activities (800,000)
December 31 January 1
Cash 2,100,000 1,200,000
Other assets 21,000,000 22,700,000
Liabilities 10,500,000 11,700,000
Share Capital 2,000,000 2,000,000
Retained Earnings 10,600,000 10,200,000

What is the net cash provided by operating activities?

a. 4,200,000
b. 2,400,000
c. 4,500,000
d. 5,400,000

36. The following information was taken from the financial records of the Romano Company.
a) Net income was $189,500 for the period.
b) Purchased 10,000 shares of common stock at $15 per share for the treasury.
c) Sold equipment with a carrying value of $32,500 at a gain of $6,000.
d) Purchased land and a building worth $450,000 by signing a ten-year note payable.
e) Issued $1,000,000 in bonds at par.
f) The beginning and ending retained earnings account balances were $418,000 and
$534,000, respectively. There were no prior period adjustments during the period.
g) Wrote a check for $648,000 for the purchase of machinery.
h) Sold long-term investments in marketable securities with a $50,000 carrying
value, at a loss of $17,500.
i) Cash dividends were declared and paid during the period.
Required: Prepare the net cash flows from financing activities section of the
Statement of Cash Flows.
a. $760,000
b. $765,700
c. $776,500
d. $757,600

37. Santos Company provided the following data for the preparation of the statement of cash flows for
the current year.
Increase in accounts receivable 300,000
Decrease in income tax payable 170,000
Depreciation 1,000,000
Net income 250,000
Gain on sale of equipment 440,000
Loss on sale of building 210,000
What amount should be reported as net cash provided by operating
activities? a. 780,000
b. 700,000
c. 880,000
d. 550,000
38. Sarmiento Company had the following activities during the current year:
● Acquired 22,000 shares of Segovia Company for P2,600,000
● Sold an investment in Rate Motors for P3,500,000 when the carrying value was P3,300,000
 ● Acquired a P5,000,000, 4*year certificate of deposit from a bank. During the year, the interest of
P375,000 was paid to Sarmiento
● Collected dividends of P120,000 on share investments
What amount should be reported as net cash used in investing activities?
a. 3,725,000
b. 3,805,000
c. 3,980,000
d. 4,100,000

39. Segovia Company provided the following information for the current year:
Net income for the current year 750,000
Sales revenue 4,500,000
Cost of goods sold, except depreciation 2,750,000
Depreciation expense 500,000
Amortization of intangible asset 200,000
Interest expense on bank note payable 300,000
Dividends paid during the year 350,000
January 1 December 31
Accounts receivable 220,000 150,000
Inventory 350,000 400,000
Accounts payable 475,000 520,000
Interest payable 100,000 85,000
Note payable - bank 2,500,000 3,000,000
Under the indirect method, what amount should be reported as net cash provided by operating activities?
a. 1,500,000
b. 1,515,000
c. 1,450,000
d. 2,020,000

40. Sipat Company use the following information for the next two questions:
The following items were presented for the purpose of determining comprehensive income.
Profit for the year 2,000
Increase in revaluation surplus 1,000
Remeasurements of the net defined benefit liability (asset) – loss (200)
Net change in translation of foreign operation (400)
Dividends declared (100)
Stock rights 300
How much is the total comprehensive income?
a. 1,800
b. 2,200
c. 2,400
d. 2,800
41. Sumanting Company reported the following information for the current year:
Sales 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 remained unchanged.
What amount should be reported as net cash provided by operating activities for the current year?
a. 440,000
b. 690,000
c. 670,000
d. 710,000

42. Turilla Corporation reported the following information for the past year:

Net Income 200,000

Depreciation Expense 30,000
Gain on sale of truck 5,000
Proceeds from sale of truck 8,000
Decrease in accounts receivable 10,000

What amount will the Turilla Corporation report as the net cash provided by operating activities on the cash flow
statement?

a. 225,000
b. 235,000
c. 253,000
d. 250,000

43. For a recent year, Verana Corporation’s financial statement reported the following:

Net Income 100,000

Depreciation Expense 10,000
Increase in accounts receivable 30,000
Decrease in accounts payable 15,000

a. 65,000
b. 125,000
c. 155,000
d. 110,000

44. The following information was taken from the financial records of the Verdan Company.
a) Net income was $189,500 for the period.
b) Purchased 10,000 shares of common stock at $15 per share for the treasury.
c) Sold equipment with a carrying value of $32,500 at a gain of $6,000.
d) Purchased land and a building worth $450,000 by signing a ten-year note.
e) Issued $1,000,000 in bonds at par.
f) The beginning and ending retained earnings account balances were $418,000 and
$534,000, respectively. There were no prior period adjustments.
g) Wrote a check for $648,000 for the purchase of machinery.
h) Sold long-term investments in stocks with a cost of$50,000 at a loss of $17,500.
i) Cash dividends were declared and paid during the period.
Required: Prepare the net cash flows from investing activities
a. 567,000
b. 557,000
c. 577,000
d. 587,000
ANSWER KEY: (THEORIES)
1. A
2. A
3. C
4. D
5. A
6. A
7. A
8. C
9. D
10. C
11. C
12. D
13. D
14. B
15. D
16. B
17. D
18. B
19. A
20. D
21. A
22. C
ANSWER KEY (PROBLEMS)
23. C
Solution:
Beginning Capital 27,000
Add: Net Cash - operating 351,000
Add: Net Cash - financing 250,000
Less: Net Cash - investing (420,000)
CASH BALANCE, end 208,000

24. A.
Explanation:
Dividends paid to suppliers are financing activity; payment of interest on bonds is an operating activity;
payments to acquire shares of Labuzon Co. are investing activities.

25. A
Solution:
Cash received from the customers and paid to employees are operating activities. Interest paid on a bank note
is also an operating activity. Therefore, the cash from operating activities is $25,000 - 3,000 - 8,000 = $14,000.

26. A
Solution:
Amount paid to suppliers = Cost of goods sold - Inventory decrease - AP increase.
$490,000 = Cost of goods sold - $30,000 - $25,000
$545,000 = Cost of goods sold

27. 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

28. D
Solution:
Inventory
Beginning inventory balance 22,500
Net purchases (squeeze) 142,500
Less: Cost of Goods Sold -135,000
Ending Inventory balance 30,000

Accounts Payable
Beginning balance 19,500
Net Purchases 142,500
Less: Payment (squeeze) -149,000
Ending balance 13,000

29. A
Solution:
Cash balance, beginning of the year 1,300,000
Cash flow from financing activities 1,000,000
Cash flow from operating activities 400,000
Cash flow from investing activities (1,500,000)
Cash balance-ending 1,200,000

30. A
Solution:
Checking account #101 1,750,000
Checking account #201 (100,000)
Money market placement 1,000,000
Time deposit 250,000
90-day treasury bill, due february 28, 2021 500,000
Total cash and cash equivalent 3,400,000

31. A
Solution:
Cash received from sale of equipment
(CA of 130,000 + gain of 50,000)
180,000
 Payment of equipment
(200,000)
Net cash used in investing activities
(20,000)

32. B
Solution:
Net income 3,000,000
Gain on sale of equipment (50,000)
Depreciation 520,000
Net cash provided by operating activities 3,470,000
Net increase in accumulated depreciation
400,000
Add back accumulated depreciation on equipment sold 120,000
Total Depreciation for the year
520,000

33. C
Solution:
Proceeds from the issuance of common stock P250,000
Borrowings under a line of credit P200,000
Proceeds from the issuance of convertible bonds P100,000
TOTAL CASH INFLOWS FROM FINANCING ACTIVITIES P550,000
Less Outflow from financing activities
Payment of Dividends P300,000
INCREASE IN CASH FLOWS P250,000

34. A
Explanation:
Only actual cash inflows and outflows are presented on the statement of cash flows. In this case, Polk paid
$3,000 in cash as a down payment for the forklift and financed the remainder of the purchase price. Therefore,
the only cash outlay as an investing activity on the statement of cash flows is $3,000. The cash outflows
associated with the payment on the note would be classified as a financing activity.

35. A
Solution:
Cash - December 31 2,100,000
Add back: Net cash used in investing activities 2,500,000
Net cash used in financing activities 800,000 5,400,000
Less: Cash - January 1 (1,200,000)
Net cash provided by operating activities 4,200,000

36. C
Solution:
Financing Activities
Cash paid to purchase treasury stock( 10,000 shares x $15) ($150,000)
Cash received from sale of bonds 1,000,000
Cash paid for dividends ($418,000 + 189,500 - 534,000) (73,500)
Net cash flows from financing activities $776,500

37. D
Solution:
Net income 250,000
Increase in accounts receivable (300,000)
Decrease in income tax payable (170,000)
Depreciation 1,000,000
Gain on sale of equipment (440,000)
Loss on sale of building 210,000
Net cash provided by operating activities 550,000

38. D
Solution:
Purchase of investment (2,600,000)
Sale of investment 3,500,000
Acquisition of 4-year certificate of deposit (5,000,000)
Net cash used in investing activities 4,100,000

39. A
Solution:
Net income 750,000
Depreciation 500,000
Amortization 200,000
Decrease in accounts receivable 70,000
Increase in inventory (50,000)
Increase in accounts payable 45,000
Decrease in interest payable (15,000)
Net cash flow from operating activities 1,500,000
The dividends paid during the year and the increase in bank note payable are classified as financing activities.

40. C
Solution:
Profit for the year 2,000
Other comprehensive income:
Revaluation gain 1,000
Remeasurements of the net defined benefit liability (asset) (200)
Translation loss on foreign operation (400)
Total other comprehensive income (a) 400
Total comprehensive income (b) 2,400

41. C
Solution:
Sales 2,800,000
Cost of goods sold (1,000,000)
Distribution costs (400,000)
Administrative expenses (350,000)
Interest paid (100,000)
Income tax expense (280,000)
Net cash provided by operating activities 670,000

Interest expense 80,000

Premium amortization 20,000
Interest paid 100,000

42. B
Solution:
Cash provided by operating activities:
Net Income 200,000
Depreciation Expense 30,000
Gain on sale of truck (5,000)
Decrease in accounts receivable 10,000
Net cash provided by operating activities: 235,000

43. A
Solution:
Cash provided by operating activities:
Net Income 100,000
Depreciation Expense 10,000
Increase in accounts receivable (30,000)
Decrease in accounts payable (15,000)
Net cash provided by operating activities: 65,000

44. C
Solution:
Investing Activities
Cash received from sale of equipment (32,000 – 6,000) 38,500
Cash received from sale of investments (50,000 – 17,500) 32,500
Cash paid for machinery (648,000)
Net cash flows from investing activities (577,000)