c.

Financing activities
d. Component of cash and cash equivalents
CONCEPTUAL FRAMEWORK AND
ACCOUNTING STANDARDS (CFAS) 7. How should a gain from sale of equipment for
PRACTICE SET NO. 4 cash be reported in a statement of cash flows
using the indirect method?
PAS 7 – STATEMENT OF CASH
a. In investing activities as a reduction of the cash
FLOWS inflow from the sale
KBGARCIA, CPA b. In investing activities as a cash outflow
c. In operating activities as a deduction from
income
1. A report that provides information about the d. In operating activities as an addition to income
entity’s cash inflows and outflows during the
period. 8. All can be classified as cash and cash
a. statement of cash flows. equivalents, except
b. statement of comprehensive income a. Redeemable preference shares due in 60 days
c. statement of financial position b.Treasury bills due for repayment in 90 days
d. notes to financial statements c. Equity investments
d. A bank overdraft
2. The primary purpose of a statement of cash
flows is to provide relevant information about 9. Accrual accounting is used because
which of the following? A. Cash flows are considered less important.
a. an entity’s ability to generate positive net cash B. It provides a better indication of ability to
flows. generate cash flows than cash basis.
b. an entity’s ability to meet cash operating needs. C. It recognizes revenue when cash is received.
c. the cash receipts and cash disbursements of an D. It is one of the implicit assumptions.
entity during a period.
d. difference between net income and associated 10. The following examples are under operating
cash receipts and disbursements. activities, except :
A. Cash receipts from sale of goods and services.
3. The statement of cash flows provides answers B. Future contracts, forward contracts, option
to all of the following questions except contracts, and swap contracts that require cash
I. Where did the cash come from during the payments.
period? C. Royalties, rental fees, commissions, and other
II. What was the cash used for during the period? revenues.
III. What was the impact of inflation on the cash D. Payment to suppliers.
balance at the end of the year?
IV. What was the change in the cash balance 11. Operating activities is associated with any
during the period? changes in which of the following?
a. I and II. A. Current assets only.
b. III only. B. Current liabilities only.
c. I, II, and III. C. Current assets and current liabilities.
d. I, II , III, and IV. D. Non-current assets and non-current liabilities.

4. The statement of cash flows is solely 12. Under IFRS, the dividend received from share
concerned with investments can be classified as
a. Cash. a. Either an operating activity or a financing
b. Cash inflows. activity
c. Cash outflows. b. Either an operating activity or investing activity
d. Assets. c. Only as an investing activity
d. Only an operating activity
5. Dividend payments to shareholders are
classified as 13. In a statement of cash flows, depreciation is
a. Cash outflows for investing activities treated as an adjustment to net income because
b. Cash inflows from investing activities depreciation
c. Cash inflows from financing activities a. Is a direct source of cash
d. Cash outflows for financing activities b. Reduces income but does not involve cash
outflow
6. Bank overdrafts that are repayable on demand c. Reduces net income and involves an inflow of
and the bank balance often fluctuates from cash
positive to overdrawn shall be classified as d. Is an inflow of cash for replacement of asset
a. Operating activities
b. Investing activities
14. What is the treatment of a three-month b. Dividends and depreciation
treasury bill? c. Capital expenditures and dividends
a. Not reported d. Capital expenditures and depreciation
b. An outflow for financing activities
c. An outflow for lending activities 22. In preparing a statement of cash flows, cash
d. An outflow for investing activities flows from operating activities
a. are determined as a difference between
15. An entity's wages payable increased. Under revenues and expenses.
the direct method, the cash paid for wages would b. are always equal to accrual accounting income.
be c. can be determined by appropriately adding to or
a. Salary expense plus beginning wages payable deducting from net income those items in the
b. Salary expense plus the increase in wages income statement that do not affect cash.
payable d. can be determined by appropriately adding to
c. Salary expense less the increase in wages or deducting from net income those items in the
payable income statement that do affect cash.
d. The same as salary expense
23. Interest received from lending transactions
16. An entity's accounts receivable decreased. In can be classified in the statement of cash flows as
the statement of cash flows, the cash collected a. either an operating activity or investing activity
from customers would be b. either an operating activity or financing activity
a. Sales revenue plus beginning accounts c. only as an operating activity
receivable d. only as an investing activity
b. Sales revenue plus the decrease in accounts e. only as an financing activity
receivable
c. Sales revenue less the decrease in accounts 24. Dividends paid to shareholders can be
receivable classified in the statement of cash flows as
d. The same as sales revenue a. either an operating activity or investing activity
b. either an operating activity or financing activity
17. The amortization of bond discount related to c. only as an operating activity
long-term debt is presented in statement of cash d. only as an investing activity
flows prepared as e. only as an financing activity
a. Inflow and outflow of cash
b. Outflow of cash 25. How should a gain on sale of machinery for
c. Deduction from net income cash be reported in the cash flow statement using
d. Addition to net income the indirect method?
a. in operating activities as an addition to net
18. The amortization of a bond premium related to income.
long-term debt is presented in statement of cash b. in operating activities as a deduction from net
flows as income.
a. A positive adjustment to net income . c. in investing activities as a cash inflow
b. Cash outflow from investing activities. d. in investing activities as a cash outflow.
c. Cash outflow from financing activities.
d. A negative adjustment to net income. DO-IT-YOURSELF (DIY)
19. Under indirect method, how should an 1. A statement of cash flows is composed of 3
unrealized gain on foreign currency transaction be types of activities namely :
presented? a. operating activities, investing activities, and
a. As an inflow under financing activities issuing activities.
b. It should be ignored as it is an unrealized gain b. operating activities, investing activities, and
c. It should be disclosed in notes financing activities.
d. As a deduction from net income c. investing activities, supplying activities and
receiving activities.
20. The statement of cash flows reports all, except d. operating activities, disposing activities, and
a. The net change in cash for the period. financing activities.
b. The cash flows from operations during the
period. 2. Cash flows arising from trading securities are
c. The free cash flow generated during the period a. Classified as operating activities
d. Investing transactions. b. Classified as investing activities
c. Classified as financing activities
21. Free cash flow is calculated as net cash d. Not reported in the cash flow statement
provided by operating activities less
a. Capital expenditures
3. Cash payments to acquire equity instruments
are 11. sale of treasury shares would be classified as
a. Cash outflows for financing activities a. operating activities.
b. Cash inflows from investing activities b. investing activities.
c. Cash outflows for investing activities c. financing activities.
d. Cash inflows from financing activities d. purchase activity.

4. All of the following could potentially be 12. which statement about the method of
classified as either operating or investing cash preparing the statement of cash flows is true?
flow, except a. the indirect method starts with income before
a. Interest received tax.
b. Dividend received b. the direct method is known as the reconciliation
c. Taxes paid specifically identified with investing method.
d. Dividend paid c. the direct method is more consistent with the
primary of the statement of cash flows.
5. Making and collecting loans are d. all of the above statements are true.
a. Operating activities
b. Investing activities 13. the amortization of discount related to a long
c. Financing activities term note receivable is presented in a statement
d. Liquidity activities of cash flows prepared using the indirect method
as a(n)
6. Which of the following is not disclosed in the a. addition to net income
statement of cash flows prepared under the direct b. deduction to net income
method? c. inflow of cash
a. The major classes of gross cash receipts and d. outflow of cash
gross cash payments.
b. The amount of income taxes paid. 14. the amortization of premium related to a long
c. A reconciliation of net income to net cash flow term bond obligation is presented in a statement
from operations. of cash flows prepared using the indirect method
d. A reconciliation of ending retained earnings to as a(n)
net cash flow from operations. a. addition to net income
b. deduction to net income
7. What section of a cash flow statement shows c. inflow of cash
the cash paid on new equipment during the d. outflow of cash
previous accounting period?
a. the investing activities section. 15. how should repayment of long-term loan
b. the operating activities section. comprising repayment of the principal amount and
c. the financing activities section. interest due to date be treated in a statement of
d. the statement of cash flows does not provide cash flows?
this kind of information. a. the repayment of the principal loan is an
investing cash flow, and the interest payment is
8. Cash flows arising from trading securities are either an operating cash flow or a financing cash
a. classified as operating activities. flow.
b. classified as investing activities. b. the repayment of the principal loan is a
c. classified as financing activities. financing cash flow, and the interest payment is
d. not reported in the statement of cash flows. either an operating cash flow or a financing cash
flow.
9. Cash receipts from issuing shares are c. the repayment of the principal loan is a
a. classified as operating activities. financing cash flow, and the interest payment is
b. classified as investing activities. either an operating cash flow or investing cash
c. classified as financing activities. flow.
d. not reported in the statement of cash flows. d. the repayment of the principal loan is a
financing cash flow, and the interest payment is
10. cash advances and loans made by a financial netted against interest received on bank deposits
institution are usually classified as and the net amount of interest is shown as an
a. operating activities. operating cash flow.
b. investing activities.
c. financing activities.
d. component as cash and cash equivalents
PROBLEM SOLVING :

1. Barr Company provided the following information for the current year:
Cash, January 1 P320,000
Net cash provided by operating activities 410,000
Net cash used by investing activities 390,000
Net cash provided by financing activities 200,000

What is the cash balance on December 31?

P540,000 (320+410-390+200)

Floppy Company used the direct method to prepare statement of cash flows. The entity had the
following cash flows during 2022:

January 1 cash balance 1,000,000

Cash receipts from issuance of ordinary shares 1,208,000
Cash receipts from customers 1,640,000
Proceeds from sale of treasury shares (Cost - P720,000) 800,000

Cash receipts from dividends on long-term investments 80,000

Cash receipts from repayment of loan made to another
company 640,000
Cash payments to suppliers 1,080,000
Cash paid to redeem own shares 1,200,000
Cash paid for interest on long-term notes 120,000
Cash payments for operating expenses 320,000
Cash payment for dividends 200,000
Cash payment for income taxes 144,000
Cash paid to purchase land 1,040,000

1. What is the net cash provided (used) by operating activities? 56K ( 1640+80-1080-120-320-144)
2. What is the net cash (used) by investing activities? 400K (640 – 1,040)
3. What is the net cash provided (used) by financing activities? 608K (1208+800-1200-200)
4. What is the cash balance at year-end? 1,264K (1000+56-400+608)