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REVIEW OF FINANCIAL ACCOUNTING THEORY AND PRACTICE

CASH FLOWS STATEMENT

1. Presented below are the balance sheet accounts of Maasin Company:

2005 2004_
Assets
Cash 6,000,000 4,500,000
Trading securities 2,500,000 3,000,000
Accounts receivable 4,800,000 3,200,000
Allowance for doubtful accounts ( 800,000) ( 200,000)
Inventories 5,200,000 6,000,000
Property , plant and equipment 13,000,000 8,000,000
Accumulated depreciation (3,700,000) (3,200,000)
Patent, net 1,000,000 1,700,000
Total assets 28,000,000 23,000,000

Liabilities and Equity

Accounts payable 4,800,000 4,500,000
Note payable - bank 2,000,000 3,500,000
Deferred tax liability 700,000 500,000
Bonds payable 3,000,000 -
Common stock, P10 par value 12,000,000 10,000,000
Additional paid in capital 1,500,000 1,000,000
Treasury stock, at cost ( 500,000) -
Retained earnings 4,500,000 3,500,000
Total liabilities and equity 28,000,000 23,000,000
Additional information
 The net income for 2005 is P6,000,000. Maasin paid a cash dividend of P5,000,000
on October 1, 2005.
 During 2005, there were no transactions affecting trading securities except the
change in market value.
 On January 2, 2005, Maasin sold equipment costing P1,000,000, with a carrying
amount of P600,000, for P500,000.
 On July 1, 2005, Maasin purchased equipment for P3,000,000 cash.
 On December 31, 2005, Maasin purchased land by issuing bonds payable at face
value of P3,000,000.

1. Net cash provided by operating activities was

a. P8,500,000
b. P7,500,000
c. P8,000,000
d. P6,000,000

2. Net cash used in investing activities was

a. P2,500,000
b. P4,000,000
c. P3,000,000
d. P3,500,000

3. Net cash used in financing activities was

a. P4,500,000
b. P4,000,000
c. P6,500,000
d. P7,000,000
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2. Tubungan Company provides the following information for 2005:

Cash received from customers 8,000,000
Rent received 500,000
Interest received 300,000
Cash paid to suppliers and employees 3,000,000
Taxes paid 400,000
Interest paid on long term debt 600,000
Cash dividend paid 1,000,000
Under the direct method, cash provided by operating activities was
a. P3,800,000
b. P5,400,000
c. P4,800,000
d. P5,100,000

3. The following was taken from the statements of Badiangan Company for the year 2005:
Accounts receivable – January 1 500,000
Accounts receivable – December 31 1,000,000
Sales on account and cash sales 8,000,000
Uncollectible accounts 100,000
No accounts receivable were written off or recovered during 2005. If the direct method
is used in the 2005 cash flow statement, Badiangan should report cash collected from
customers at
a. P7,500,000
b. P7,400,000
c. P8,500,000
d. P8,400,000

4. Bingawan Company reported net income of P10,000,000 for 2005. Changes occurred in
several balance sheet accounts during 2005 as follows:
Investment in stock, carried at equity 2,500,000 increase
Premium on bonds payable 500,000 decrease
Accumulated depreciation, caused by major repair
to equipment 1,000,000 decrease
Deferred tax liability 400,000 increase
In the 2005 cash flow statement, the cash provided by operating activities should be
a. P7,400,000
b. P6,400,000
c. P9,400,000
d. P7,000,000

5. During 2005, Sapa-Sapa has the following activities related to its financial operations:
Payment for the early retirement of long-term bonds payable
(carrying amount of bonds payable P5,000,000) 5,500,000
Distribution in 2005 of cash dividend declared in 2004 3,000,000
Carrying amount of convertible preferred stock converted into 2,000,000
common shares
Proceeds from sale of treasury stock (cost, P2,000,000) 2,500,000

In the 2005 cash flow statement, net cash used in financing activities should be
a. P6,000,000
b. P3,000,000
c. P8,500,000
d. P6,500,000
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6. The transactions of Lambunao Company for the year 2005 included the following:
Cash borrowed from bank for purchase of land 6,000,000
Purchase of land for cash 6,000,000
Sale of securities for cash 1,000,000
Dividend declared (of which P2,000,000 was paid during the year) 3,000,000
Issuance of common stock for cash 7,000,000
Payment of bank loan including interest of P500,000 3,500,000
Increase in customers’ deposits 500,000
The 2005 cash flow statement should report net cash provided by financing activities at
a. P8,000,000
b. P8,500,000
c. P7,500,000
d. P7,000,000

7. Loboc Company had the following activities during 2005:

* Acquired common stock of Marbel Company for P3,000,000.
* Sold an investment in Raya Company for P4,500,000 when the carrying amount was
P3,800,000.
* Acquired a P5,000,000 one-year certificate of deposit from a bank. During the year,
interest of P400,000 was received from the bank.
* Collected dividends of P800,000 on stock investments.
In the 2005 cash flow statement, net cash used in investing activities should be
a. P3,500,000
b. P3,900,000
c. P4,300,000
d. P4,700,000

8. In 2005, a tsunami completely destroyed a building belonging to Parian Comapny. The

cost of the building was P8,000,000 and had accumulated depreciation of P5,000,000 at
the time of loss. Parian received a cash settlement from an insurance company and
reported a casualty loss of P500,000. In its 2005 cash flow statement, the net change
reported in the cash flows from investing activities should be
a. P3,000,000 decrease
b. P2,500,000 increase
c. P3,500,000 increase
d. P 500,000 decrease

9. Kiangan Company has provided the following 2005 current account balances:
January 1 December 31
Accounts receivable 1,500,000 2,800,000
Allowance for doubtful accounts 200,000 400,000
Prepaid insurance 600,000 450,000
Accounts payable 900,000 1,200,000
Kiangan’s net income for 2005 was P8,000,000. Net cash provided by operating
activities should be
a. P7,350,000
b. P9,550,000
c. P7,150,000
d. P8,650,000

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