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PRACTICAL ACCOUNTING 1 – REVIEW

CASH FLOW STATEMENT

PROF. U.C. VALLADOLID

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
1. The balance sheet data of Kohler Company at the end of 2019 and 2018 follow:
2019 2018
Cash 50,000 70,000
Accounts receivable (net) 120,000 90,000
Merchandise inventory 140,000 90,000
Prepaid expenses 20,000 50,000
Buildings and equipment 180,000 150,000
Accumulated depreciation—buildings and equipment (36,000) (16,000)
Land 180,000 80,000
Totals 654,000 514,000
Accounts payable 136,000 110,000
Accrued expenses 24,000 36,000
Notes payable—bank, long-term 80,000
Mortgage payable 60,000
Share capital-ordinary, 10 par 418,000 318,000
Retained earnings (deficit) 16,000 (30,000)
654,000 514,000
Land was acquired for 100,000 in exchange for ordinary shares, par 100,000, during the year; all
equipment purchased was for cash. Equipment costing 10,000 was sold for 4,000; book value of the
equipment was 8,000 and the loss was reported in net income. Cash dividends of 20,000 were
charged to retained earnings and paid during the year; the transfer of net income to retained earnings
was the only other entry in the Retained Earnings account. In the statement of cash flows for the year
ended December 31, 2019, for Kohler Company:

1. The net cash provided by operating activities was

a. 52,000.
b. 66,000.
c. 56,000.
d. 48,000.

2. The net cash provided (used) by investing activities was

a. 26,000.
b. (40,000).
c. (136,000).
d. (36,000).

3. The net cash provided (used) by financing activities was

a. -0-.
b. (20,000).
c. (40,000).
d. 60,000.

2. Kensington Industries reported net income of 50,000 in 2019. Depreciation expense was 19,000. The
following working capital accounts changed:
Accounting receivable 11,000 increase
Non-trading equity investment 16,000 increase
Inventory 7,300 increase
Non-trade note payable 15,000 increase
Accounts payable 12,200 increase
If Kensington uses IFRS reporting and the indirect method, what amount is their adjustments to
reconcile net income to net cash provided by or (used in) operating activities?
a. 3,100
b. 49.500
c. 12,900
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d. 10,500

3. Lino Co.’s worksheet for the preparation of its year 1 statement of cash flows included the following:
December 31 January 1
Accounts receivable 29,000 23,000
Allowance for uncollectible accounts 1,000 800
Prepaid rent expense 8,200 12,400
Accounts payable 22,400 19,400

Lino’s year 1 net income is 150,000. What amount should Lino include as net cash provided by
operating activities in the statement of cash flows?
a. 151,400
b. 151,000
c. 148,600
d. 145,400

4. The following information on selected cash transactions for 2019 has been provided by Mancuso
Company:
Proceeds from sale of land 160,000
Proceeds from long-term borrowings 400,000
Purchases of plant assets 144,000
Purchases of inventories 680,000
Proceeds from sale of Mancuso ordinary shares 240,000
What is the cash provided (used) by investing activities for the year ended December 31, 2019, as a
result of the above information?
a. 16,000
b. 256,000.
c. 160,000.
d. 800,000.

5. Peavy Corp.'s transactions for the year ended December 31, 2019 included the following:
Acquired 50% of Gant Corp.'s ordinary shares for 180,000 cash which was borrowed from a
bank.
Issued 5,000 of its preference shares for land having a fair value of 320,000.
Issued 500 of its 11% debenture bonds, due 2019, for 392,000 cash.
Purchased a patent for 220,000 cash.
Paid 120,000 toward a bank loan.
Sold available-for-sale investments for 796,000.
Had a net increase in returnable customer deposits (long-term) of 88,000.

1. Peavy’s net cash provided by investing activities for 2019 was

a. 296,000.
b. 396,000.
c. 476,000.
d. 616,000.

2. Peavy’s net cash provided by financing activities for 2019 was

a. 452,000.
b. 540,000.
c. 572,000.
d. 660,000.
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6. In preparing its cash flow statement for the year ended December 31, year 1, Reve Co. collected
the following data:
Gain on sale of equipment (6,000) Proceeds from sale of equipment 10,000 Purchase of A.S., Inc.
bonds (par value 200,000) (180,000) Amortization of bond discount 2,000 Dividends declared
(45,000) Dividends paid (38,000) Proceeds from sale of treasury stock (carrying amount 65,000)
75,000 In its December 31, year 1 statement of cash flows,

Q1. What amount should Reve report as net cash used in investing activities?
a. 170,000
b. 176,000
c. 188,000
d. 194,000

Q2. What amount should Reve report as net cash provided by financing activities?
a. 20,000
b. 27,000
c. 30,000
d. 37,000

7. The balance in retained earnings at December 31, 2018 was 720,000 and at December 31, 2019 was
582,000. Net income for 2019 was 500,000. A share dividend was declared and distributed which
increased share capital 200,000 and share premium 110,000. A cash dividend was declared and
paid.

1. The amount of the cash dividend was

a. 248,000.
b. 328,000.
c. 442,000.
d. 638,000.

2. The share dividend should be reported on the statement of cash flows (indirect method) as
a. an outflow from financing activities of 200,000.
b. an outflow from financing activities of 310,000.
c. an outflow from investing activities of 310,000.
d. Share dividends are not shown on a statement of cash flows.

8. The following information was taken from the 2019 financial statements of Dunlop Corporation:
Bonds payable, January 1, 2019 500,000
Bonds payable, December 31, 2019 2,000,000
During 2019
A 450,000 payment was made to retire bonds payable with a face amount of 500,000.
Bonds payable with a face amount of 200,000 were issued in exchange for equipment.
In its statement of cash flows for the year ended December 31, 2019, what amount should Dunlop
report as proceeds from issuance of bonds payable?
a. 1,500,000
b. 1,750,000
c. 1,800,000
d. 2,200,000

9. Flow Co.’s January 1, 2019, retained earnings account balance was 720,000. The company’s net
income for the year ended December 31, 2019, was 300,000 and its December 31, 2019, retained
earnings account balance was 890,000. Assuming all of the difference is a cash flow, which of the
following amounts would appear in the “cash flow from financing activities” section of the statement
of cash flows with respect to activity in the retained earnings account during the year?
a) 130,000 cash outflow
b) 130,000 cash inflow
c) 300,000 cash outflow
d) 300,000 cash inflow
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10. OIU Company granted its executives options to purchase 30,000 shares at 30 each. An option price
model valued the options at 120,000. Options vest over 3 years. When the share price was 35,
10,000 options were exercised. What is the amount of cash inflow to be reported in the financing
section of the statement of cash flows related to this transaction?
a) 120,000
b) 300,000
c) 350,000
d) 390,000

11. The differences in Beal Inc.’s balance sheet accounts at December 31, year 2 and year 1, are
presented below.
Increase (Decrease)
Assets
Cash and cash equivalents 120,000
Available-for-sale securities 300,000
Accounts receivable, net --
Inventory 80,000
Long-term investments (100,000)
Plant assets 700,000
Accumulated depreciation --
1,100,000
Liabilities and Stockholders’ Equity
Accounts payable and accrued liabilities (5,000)
Dividends payable 160,000
Short-term bank debt 325,000
Long-term debt 110,000
Common stock, 10 par 100,000
Additional paid-in capital 120,000
Retained earnings 290,000
1,100,000

The following additional information relates to year 2:

Net income was 790,000.

Cash dividends of 500,000 were declared.
Building costing 600,000 and having a carrying amount of 350,000 was sold for 350,000.
Equipment costing 110,000 was acquired through issuance of long-term debt.
A long-term investment was sold for 135,000. There were no other transactions affecting long-term
investments.
10,000 shares of common stock were issued for 22 a share.
In Beal’s year 2 statement of cash flows,

Q1. Net cash provided by operating activities was

a. 1,160,000
b. 1,040,000
c. 920,000
d. 705,000

Q2. Net cash used in investing activities was

a. 1,005,000
b. 1,190,000
c. 1,275,000
d. 1,600,000

Q3. Net cash provided by financing activities was

a. 20,000
b. 45,000
c. 150,000
d. 205,000

12. Husky Company has provided the following information for its most recent year of operation:
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Cash collected from customers totaled 89,300.

Cash borrowed from banks totaled 31,700.
Cash paid to employees totaled 32,100.
Cash paid for interest totaled 2,900.
Cash received from selling Husky stock to stockholders totaled 41,000.
Cash payments to banks for repayment of money borrowed totaled 7,500.
Cash paid for operating expenses totaled 9,600.
Land costing 25,000 was sold for 25,000 cash.
Cash paid for dividends to stockholders totaled 3,300.

How much was Husky's cash flow from financing activities?

A. 72,700
B. 59,000
C. 65,200
D. 61,900

13. Using the information given below, determine the cash provided by operating activities during 2019
under indirect method. Net income during 2019 is P648,000:
12/31/2018 12/31/2019
Accrued interest payable recognized P40,000 P50,000
Depreciation expense recognized 72,800 75,600
Prepaid expense recognized 3,100 4,940

a. 637,040
b. 637,080
c. 731,760
d. 735,440

14. Arlene. Inc. had the following statements prepared as of Dec. 31, 2019:

Arlene, Inc.
COMPARATIVE BALANCE SHEET
Dec. 31, 2019 and 2018

12/31/2019 12/31/2018
Cash P 30,000 P 35,000
Account Receivable 540,000 505,000
Available for sale securities 175,000 90,000
Inventories 161,688 300,000
Prepaid rent 25,000 20,000
Machinery and Equipment 770,000 650,000
Accumulated Depreciation (175,000) (125,000)
Total Assets P1,526,688 P1,475,000

Accounts Payable P230,000 P200,000

Income taxes payable 20,000 30,000
Wages payable 40,000 20,000
Short-term loans payable 40,000 50,000
Long-term loans payable 300,000 345,000
Common Stock, P10 par 500,000 500,000
APIC 150,000 150,000
Retained Earnings 246,688 180,000
Total Liabilities and Equity P1,526,688 P1,475,000

Arlene, Inc.
INCOME STATEMENT
For the year ending Dec. 31, 2019

Sales P1,690,750
Cost of Good sold 875,000
Gross Profit 815,750
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Operating Expenses 620,000

Operating Income 195,750
Interest Expense 47,000
Income before tax 148,750
Income tax expense 52,062
Net Income P 96,688

Addition information:
1. Dividends in the amount of P30,000 were declared and paid during 2019.
2. Depreciation expense is included in operating expenses
3. No unrealized gains or losses have occurred on available for sale securities during the year.

Based on the given data, calculate the following;

1. Cash received from customers

a. P1,725,750
b. P1,625,750
c. P1,655,750
d. P1,593,688
2. Cash paid to suppliers
e. P706,688
f. P983,312
g. P766,688
h. P736,688
3. Cash paid for operating expenses
i. P545,000
j. P595,000
k. P617,062
l. P555,000
4. Net cash provided by operating activities
m. P347,062
n. P285,000
o. P335,000
p. P305,000
5. Net cash used in investing activities
q. P120,000
r. P235,000
s. P205,000
t. P347,062
6. Net cash used in financing activities
u. P75,000
v. P147,062
w. P55,000
x. P85,000