CHAPTER 5

THE STATEMENT OF CASH FLOWS

PROBLEMS
5-1.

(CURRENCY COMPANY)
Cash flows from operating activities
Profit before income tax (780,000 +1,820,000)
Adjustments for
Depreciation expense
Patent amortization expense
Income from investment in subsidiary
Interest expense
Operating income before working capital changes
Increase in accounts receivable
Decrease in accounts payable
Cash generated from operations
Interest paid (100,000 18,000)
Income tax paid (780,000 60,000)
Net cash from operating activities

5-2.

750,000
270,000
(480,000)
100,000
P3,240,000
(340,000)
( 26,000)
P2,874,000
(82,000)
(720,000)
P2,072,000

(YEN COMPANY)
Cash flows from operating activities
Collections from customers
Payments to suppliers and employees
Cash generated from operations
Interest paid
Income taxes paid
Net cash from operating activities

5-3.

P2,600,000

P983,000
(675,000)
P308,000
(82,000)
(154,000)
P 72,000

(PESO COMPANY)
(a)

Indirect method

Cash flows from operating activities

Profit before income tax
Adjustments for
Depreciation expense
Operating income before working capital changes
Decrease in accounts receivable
Increase in inventories
Decrease in accounts payable
Increase in salaries payable
Cash generated from operations
Income tax paid (66,000 12,000)
Net cash from operating activities
(b)

P220,000
80,000
P300,000
50,000
(89,000)
(46,000)
24,000
P239,000
(54,000)
P185,000

Direct method

Cash flows from operating activities

Collections from customers
Payments to trade creditors
Payments for salaries
Cash generated from operations
Income taxes paid
Net cash from operating activities

P1,050,000
(715,000)
(96,000)
P 239,000
54,000
P185,000

27

Chapter 5 The Statement of Cash Flows

1,000,000 + 50,000 = 1,050,000

580,000 + 89,000 + 46,000 = 715,000
120,000 - 24,000 = 96,000
66,000 - 12,000 = 54,000

5-4.

(SWISS FRANC COMPANY)

(a)

Direct method

Cash flows from operating activities

Collections from customers
Payments to trade creditors
Payments for salaries
Payments for insurance
Cash generated from operations
Income taxes paid
Interest paid
Net cash from operating activities

P6,220,000
(4,140,000)
(720,000)
(560,000)
P 800,000
(252,000)
(175,000)
P373,000

6,100,000 + 120,000 = 6,220,000

3,700,000 + 280,000 + 160,000 = 4,140,000
820,000 - 100,000 = 720,000
380,000 + 180,000 = 560,000
288,000 18,000 40,000 + 22,000 = 252,000
120,000 + 30,000 + 25,000 = 175,000
(b)

Indirect method

Cash flows from operating activities

Profit before income tax
Adjustments for
Gain on sale of equipment
Depreciation expense
Operating income before working capital changes
Decrease in accounts receivable
Increase in inventory
Decrease in accounts payable
Increase in prepaid insurance
Increase in salaries payable
Cash generated from operations
Income taxes paid
Interest paid paid
Net cash from operating activities

P1,080,000
(100,000)
220,000
P1,200,000
120,000
(280,000)
(160,000)
(180,000)
100,000
P800,000
(252,000)
(175,000
P373,000

5-5.
Items that would be reported in the Statement of Cash Flows (indirect method)
1.
Depreciation expense of P120,000 is added to profit before income taxes.
2.
Net gain of P5,000 from sale of machine is deducted from profit before income taxes. (Gain
of P9,000 from sale of machine A less loss of P4,000 from sale of machine B).
3.
Under investing activities section, P29,000 is reported as a cash inflow of sale of machine
(27,000 from machine A plus P2,000 from machine B).
4.
Under investing activities, P250,000 is reported as a cash outflow for purchase of machine.

28

Chapter 5 The Statement of Cash Flows

5-6.

(DOLLAR COMPANY)
(Indirect method)
Dollar Company
Statement of Cash Flows
For year ended December 31, 2012
Cash flows from operating activities
Profit
Adjustments for
Depreciation expense
Operating income before working capital changes
Decrease in accounts receivable
Increase in inventory
Decrease in accounts payable
Net cash from operating activities
Cash flows from investing activities
Purchase of equipment
Cash flows from financing activities
Issue of ordinary share capital
Cash dividends paid
Net increase in cash
Add cash balance, January 1
Cash balance, December 31

5-7.

P580,000
290,000
P870,000
110,000
(200,000)
(90,000)
P690,000
(880,000)
P550,000
(260,000)

290,000
P100,000
42,000
P142,000

(EURO COMPANY)
Euro Company
Statement of Cash Flows
For year ended December 31, 2012
Cash flows from operating activities
Profit before income taxes
Adjustments for
Depreciation expense
Gain on sale of plant assets
Interest expense
Income before working capital changes
Increase in accounts receivable
Increase in inventories
Increase in prepaid rent
Decrease in accounts payable
Increase in salaries payable
Cash generated from operations
Interest paid
Income taxes paid
Cash flows from investing activities
Proceeds from sale of plant assets
Payments for purchase of plant assets
Payments for purchase of investment in associate
Cash flows from financing activities
Receipts from issuance of ordinary share capital
Receipts from issuance of notes
Payments for dividends
Increase in cash
Add cash balance, beginning
Cash balance, end

29

P2,955,000
750,000
(300,000)
100,000
P3,505,000
(600,000)
(150,000)
(6,000)
(285,000)
120,000
P2,584,000
( 80,000)
(281,800)

P2,222,200

P 800,000
(7,600,000)
(4,000,000)

(10,800,000)

P5,000,000
6,000,000
(1,200,000)

9,800,000
P1,222,200
430,000
P1,652,200

Chapter 5 The Statement of Cash Flows

(Direct method)
Euro Company
Statement of Cash Flows
For year ended December 31, 2012
Cash flows from operating activities:
Cash receipts from customers
Cash payments for merchandise purchases
Cash payments for salaries
Cash payments for rent
Cash payments for miscellaneous expenses
Cash generated from operations
Interest paid
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Proceeds from sale of plant assets
Payments for purchase of plant assets
Payments for purchase of investment in associate
Cash flows from financing activities
Receipts from issuance of ordinary share capital
Receipts from issuance of notes
Payments for dividends
Increase in cash
Add Cash balance, beginning
Cash balance, end

5-8.

P8,600,000
(3,635,000)
(1,980,000)
(131,000)
(270,000)
P2,584,000
( 80,000)
(281,800)
P2,222,200
P 800,000
(7,600,000)
(4,000,000)
P5,000,000
6,000,000
(1,200,000)

(10,800,000)

9,800,000
P1,222,200
430,000
P1,652,200

(RIYAL COMPANY)
Riyal Company
Statement of Cash Flows
For year ended December 31, 2012
Cash flows from operating activities
Profit for the year
Adjustments for
Depreciation expense
Loss on sale of equipment
Impairment loss on goodwill
Amortization of discount on bonds payable
Gain on sale of long-term investments
Increase in accounts receivable
Decrease in inventory
Increase in accounts payable
Increase in trading securities
Net cash from operating activities
Cash flows from investing activities
Sale of equipment
Purchase of property and equipment
Sale of long-term investment
Net cash flows from investing activities
Cash flows from financing activities
Receipts from issuance of ordinary share capital
Payments for dividends
Net cash flows from financing activities
Increase in cash
Add cash balance, beginning
Cash balance, end

30

P 480,000
600,000
80,000
100,000
50,000
(30,000)
(500,000)
150,000
300,000
(100,000)
P 1,130,000
P420,000
(1,900,000)
280,000
(1,200,000)

P1,000,000
(750,000)
250,000
P 180,000
620,000
P 800,000

Chapter 5 The Statement of Cash Flows

5-9.

(RUPIAH COMPANY)
Purchase of treasury shares
Increase in long-term debt
Depreciation expense
Amortization of intangibles
Loss on sale of equipment
Gain on sale of land
Proceeds from issue of ordinary share
Purchase of equipment
Proceeds from sale of equipment
Proceeds from sale of land
Payment of cash dividend
Profit
Increase in accounts receivable
Decrease in inventory
Increase in trade payables
Increase in income tax payable
Decrease in interest payable
Impairment loss on equipment
Cash balance, January 1, 2012
Cash balance, December 31, 2012

(1,000,000)
5,000,000
1,000,000
500,000
300,000
(200,000)
4,500,000
(6,000,000)
1,000,000
1,800,000
(2,000,000)
8,500,000
(2,000,000)
2,400,000
4,200,000
1,300,000
(700,000)
300,000
8,000,000
26,900,000

5-10. (BAHT COMPANY)

Baht Company
Statement of Cash Flows
For the Year Ended December 31, 2012
Cash flows from operating activities
Profit (loss) for the year
Adjustments for
Depreciation expense
Amortization of premium on bonds
Gain on equipment sale
Gain on bond retirement
Dividends on investment in associate
Income from associates
Increase in accounts payable
Increase in revenue received in advance
Increase in accounts receivable
Decrease in prepayments
Decrease in inventory
Cash flows from investing activities
Purchase of property and equipment
Cash flows from financing activities
Retirement of bonds
Issue of share capital
Purchase of treasury shares
Payment of dividends
Decrease in cash
Add cash balance, beginning
Cash balance, end

31

P (20,000)
35,000
(5,000)
(4,000)
(10,000)
40,000
(65,000)
18,000
7,000
(20,000)
6,000
5,000

P(13,000)
(30,000

(80,000)
60,000
(16,000)
(25,000)

(61,000)
P(104,000)
204,000
P 100,000

Chapter 5 The Statement of Cash Flows

MULTIPLE CHOICE QUESTIONS

Theory
MC1
MC2
MC3
MC4
MC5

D
C
A
A
C

MC6
MC7
MC8
MC9
MC10

C
A
D
A
C

MC11
MC12
MC13
MC14
MC15

D
C
D
C
A

MC16
MC17
MC18
MC19
MC20

D
C
D
A
A

Problems
MC21
MC22
MC23
MC24
MC25
MC26
MC27
MC28
MC29
MC30
MC31
MC32

D
C
C
B
B
D
C
D
C
D
A
C

MC33
MC34
MC35

A
B
D

MC36
MC37
MC38
MC39
MC40

C
A
D
C
A

MC41
MC42
MC43
MC44

B
C
C
A

MC45

870,000 + 10,000 510,000 110,000 = 260,000

4,380,000 + 216,000 304,000 = 4,292,000
550,000 500,000 + 125,000 = 175,000
250,000 + 550,000 600,000 450,000 = 250,000
200,000 + 500,000 250,000 = 450,000
750,000 29,000 + 21,000 + 15,000 = 757,000
260,000+40,000=300,000; 400,000300,000=100,000; 100,000 +120,000-102,000 = 280,000
3,200,000 + 400,000 2,500,000 = 1,100,000
690,000-35,000-80,000+250,000+10,000+25,000+80,000 = 940,000
1,100,000 - 150,000 135,000 = 815,000
220,000 + 325,000 240,000 = 305,000
5,130,000 - 470,000 =430 ,000;1,820,000+80,000-1,700,000=200,000;
430,000200,000=230,000+30,000 = 260,000
149,000-17,000+13,000=145,000; 840,000-53,000+32,000=819,000
3,600,000 + 2,500,000 1,550,000 2,910,000 = 1,640,000
910,000-40,000+70,000+50,000 = 990,000
990,000 60,000 50,000 90,000 + 30,000 = 820,000
30,000 5,000 = 25,000
264,000 + 25,000 = 289,000
820,000 25,000 -289,000 = 506,000
240,000-120,000= 120,000; 120,000 + 280,000 = 400,000
3,000,000+960,000400,000=3,560,000;1,000,000+300,000280,000 =1,020,00; 3,560,000
1,020,000 = 2,540,000
380,000 + 160,000 = 540,000
1,200,000 + 1,000,000 300,000 = 1,900,000
8,000,000 7,200,000 + 150,000 + 20,000 = 970,000
Acc. Depreciation of equipment sold = 300,000 + 74,000 25,000 283,000 = 66,000
Cost of equipment sold = 66,000 + 100,000 = 166,000
Equipment purchased = 925,000 + 166,000 780,000 = 311,000
Dividends declared = 500,000 + 1,000,000 710,000 20,000 = 770,000
Dividends paid = 22,000 + 770,000 34,000 = 758,000

32