Answers 2014 Vol 3 CH 5

CHAPTER 5
THE STATEMENT OF CASH FLOWS

5-1.
5-2.
5-3.
PROBLEMS
(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
(YEN COMPANY)
Collections from customers
Payments to suppliers and employees
Interest paid
Income taxes paid
(PESO COMPANY)
(a)
Indirect method
Profit before income tax
Adjustments for
Decrease in accounts receivable
Increase in inventories
Increase in salaries payable
Income tax paid (66,000 12,000)
(b)
Direct method
Payments to trade creditors
Payments for salaries
Income taxes paid
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
23
P2,600,000
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
P983,000
(675,000)
P308,000
(82,000)
(154,000)
P 72,000
P220,000
80,000
P300,000
50,000
(89,000)
(46,000)
24,000
P239,000
(54,000)
P185,000
P1,050,000
(715,000)
(96,000)
P 239,000
54,000
P185,000
Chapter 5 The Statement of Cash Flows
5-4.
(SWISS FRANC COMPANY)

(a)
Direct method
Payments to trade creditors
Payments for salaries
Payments for insurance
Income taxes paid
Interest paid
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
Adjustments for
Gain on sale of equipment
Increase in inventory
Increase in prepaid insurance
Income taxes paid
Interest paid paid
P6,220,000
(4,140,000)
(720,000)
(560,000)
P 800,000
(252,000)
(175,000)
P373,000
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.
Under operating activities, depreciation expense of P120,000 is added to profit
before income taxes.
2.
Under operating activities, 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.
5-6.
(DOLLAR COMPANY)
(Indirect method)
Dollar Company
Statement of Cash Flows
For year ended December 31, 2014
Adjustments for
Interest expense
Increase in inventory
Cash generated from operating activities
24
P828,500
290,000
60,000
P1,178,500
110,000
(200,000)
(90,000)
P998,500
Income taxes paid

Cash flows from investing activities
Purchase of equipment
Cash flows from financing activities
Issue of ordinary share capital
Issue of bonds at par
Cash dividends paid
Net increase in cash
Add cash balance, January 1
Cash balance, December 31
223,350
P775,150
(1,880,000)
P550,000
1,000,000
(259,950)
1, 290,050
P185,200
42,000
P227,200
Profit before tax is 828,500, computed as 579,950/70%

Dividends paid is 259,950, computed as 579,950 320,000
Income taxes paid is 30% x 828,500 = 248,550 -25,200 = 223,350
5-7.
(EURO COMPANY)
Euro Company
Profit before income taxes
P2,955,000
Adjustments for
750,000
Gain on sale of plant assets
(300,000)
Interest expense
100,000
Income before working capital changes
P3,505,000
(600,000)
Increase in inventories
(150,000)
Increase in prepaid rent
(6,000)
(285,000)
120,000
P2,584,000
Interest paid
( 80,000)
Income taxes paid
(281,800)
Proceeds from sale of plant assets
P 800,000
Payments for purchase of plant assets
(7,600,000)
Payments for purchase of investment in associate
(4,000,000)
Receipts from issuance of ordinary share capital
P5,000,000
Receipts from issuance of notes
6,000,000
Payments for dividends
(1,200,000)
Increase in cash
Add cash balance, beginning
Cash balance, end
Euro Company
Cash flows from operating activities:
Cash receipts from customers
P8,600,000
Cash payments for merchandise purchases
(3,635,000)
Cash payments for salaries
(1,980,000)
Cash payments for rent
(131,000)
Cash payments for miscellaneous expenses
(270,000)
P2,584,000
Interest paid
( 80,000)
Income taxes paid
(281,800)
P2,222,200
(10,800,000)
9,800,000
P1,222,200
430,000
P1,652,200
(Direct method)
25
P2,222,200

Proceeds from sale of plant assets
Payments for purchase of plant assets
Payments for purchase of investment in associate
Receipts from issuance of notes
Increase in cash
Add Cash balance, beginning
Cash balance, end
5-8.
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
Profit for the year
P 860,000
Adjustments for
600,000
Loss on sale of equipment
80,000
Amortization of patents
100,000
Interest expense
530,000
Gain on sale of long-term investments
(30,000)
(511,500)
Decrease in inventory
150,000
Increase in accounts payable
300,000
Increase in financial assets at FVPL
(100,000)
P1,978,500
Income taxes paid
(268,500)
Interest paid
(480,000)
Sale of equipment
P420,000
Purchase of property and equipment
(1,900,000)
Sale of long-term investment
280,000
Net cash flows from investing activities
P1,000,000
(750,000)
Net cash flows from financing activities
Increase in cash
Cash balance, end
P1,230,000
(1,200,000)
250,000
P 280,000
620,000
P 900,000
Profit before tax: 1,122,000 + 750,000 1,270,000 = 602,000; 602,000/70% = 860,000

Depreciation expense: 2,200,000 + 400,000 2,000,000 = 600,000
Income taxes paid: 30% x 860,000 = 258,000; 258,000 +45,000 34,500 = 268,500
Interest paid: 12% x 4M = 480,000 or 530,000 50,000 amort of disc = 480,000
5-9.
(RUPIAH COMPANY)
Purchase of treasury shares
Increase in long-term debt
Amortization of intangibles
Gain on sale of land
Proceeds from issue of ordinary share
Proceeds from sale of equipment
(1,000,000)
5,000,000
1,000,000
500,000
300,000
(200,000)
4,500,000
(6,000,000)
1,000,000
26
Proceeds from sale of land

Payment of cash dividend
Profit
Increase in trade payables
Increase in income tax payable
Decrease in interest payable
Impairment loss on equipment
Increase in cash and cash equivalents
Cash balance, January 1, 2014
Cash balance, December 31, 2014
1,800,000
(2,000,000)
5,950,000
(2,000,000)
2,400,000
4,200,000
1,300,000
(700,000)
300,000
16,350,000
2,000,000
18,350,000
A properly prepared statement of cash flows may also be done, as follows:

Adjustments for
Interest expense
Amortization of intangibles
Gain on sale of land
Increase in trade payable
Impairment loss on equipment
Income taxes paid
Interest paid
Sale of equipment
Sale of land
Net cash flows from investing activities
Issue of shares
Issue of long term debt
Payment of cash dividends
Net cash flows from financing activities
Increase in cash
Add cash balance, January 1, 2014
Cash balance, December 31, 2014
5-10.
P8,500,000
1,000,000
875,000
500,000
300,000
(200,000)
(2,000,000)
2,400,000
4,200,000
300,000
P15,875,000
(1,250,000)
(1,575,000)
P1,000,000
1,800,000
(6,000,000)
(3,200,000)
P4,500,000
5,000,000
(1,000,000
(2,000,000)
6,500,000
P 16,350,000
2,000,000
P 18,350,000
(BAHT COMPANY)
Baht Company
For the Year Ended December 31, 2014
Profit (loss) for the year
Adjustments for
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
27
P13,050,000
P (20,000)
35,000
(5,000)
(4,000)
(10,000)
40,000
(65,000)
18,000
7,000

Decrease in prepayments
Purchase of property and equipment
Retirement of bonds
Issue of share capital
Payment of dividends
Decrease in cash
Cash balance, end
(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
MULTIPLE CHOICE QUESTIONS

Theory
MC1
MC2
MC3
MC4
MC5
D
C
A
A
C
Problems
MC21
D
MC22
C
MC23
C
MC24
B
MC25
B
MC26
D
MC27
C
MC28
MC29
D
D
MC30
MC31
MC32
A
A
C
MC33
MC34
MC35
A
B
D
MC36
MC37
MC38
MC39
MC40
MC41
C
A
D
B
C
A
MC42
MC43
MC44
B
C
A
MC45
MC6
MC7
MC8
MC9
MC10
C
A
D
A
C
MC11
MC12
MC13
MC14
MC15
D
C
D
B
B
MC16
MC17
MC18
MC19
MC20
D
C
D
A
A
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+10,000=700,000;
700,000-80,000+250,000+10,000+25,000+80,000=985,000
1,600,000 + 400,000 1,000,000 = 1,000,000
220,000 + 325,000 240,000 = 305,000
5,130,000 4,700,000 =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
8,000,000 (7,200,000 +-150,000 - 20,000) = 970,000
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
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
28

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Answers 2014 Vol 3 CH 5

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CHAPTER 5

THE STATEMENT OF CASH FLOWS

Chapter 5 The Statement of Cash Flows

(SWISS FRANC COMPANY)

Chapter 5 The Statement of Cash Flows

Income taxes paid

Profit before tax is 828,500, computed as 579,950/70%

Chapter 5 The Statement of Cash Flows

Cash flows from investing activities

Profit before tax: 1,122,000 + 750,000 1,270,000 = 602,000; 602,000/70% = 860,000

Chapter 5 The Statement of Cash Flows

Proceeds from sale of land

A properly prepared statement of cash flows may also be done, as follows:

Chapter 5 The Statement of Cash Flows

Increase in accounts receivable

MULTIPLE CHOICE QUESTIONS

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

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