Cash Flows

Class work

Tutorial

Question 1 - Cash and Accrual Accounting

A credit sale by Underwood Importers took place on 6 th May, and the cash was
received from the customer on 18th June.
In which month would the revenue be recognised as being earned under?
a) Cash-basis accounting?
b) Accrual-basis accounting?
Mitchells Mechanical Repairs purchased spare parts on 29 th January and used
them for a repair job that day. The business paid for them on 2 nd March.
When the expense would be recognised under:
a) Cash-basis accounting?
b) Accrual-basis accounting?

Question 2
The books of Delta Ltd. show the following transactions for the month
of Dec 2008:
a) Sent out invoices for sale of goods for $ 40,000 to various customers
(debtors).
b) Received $20,500 during the month from customers (debtors) for sales made
during the previous period.
c) Borrowed from a finance company a loan for $100,000 repayable in Jan 2011
with interest payable quarterly at the rate of 10% per year.
d) An interim dividend of 20 cents per share on 100,000 shares was declared
and approved for payment to shareholders in January 2009.
e) Equipment recorded at $50,000 in the books was sold for $45,000.
f) Long term bank loan of $20,000 due to be paid back in Dec. was repaid.
g) Paid $15,000 salaries and wages for Dec. 2008.
h) Paid $10,000 to suppliers (creditors) for purchases made in November.
i) Received a $25,000 donation of $25,000 from the Government .
j) Additional share capital of $1,000,000 was issued on 31 Dec .2008 and the
cash was received then.
Required

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State the effect of each of the above on Cash flows from Operating, Investing
and Financing activities of Delta Ltd for the month of Dec 2008.

Question 3

The House of Howard Ltd. is a company specializing in the manufacture

and sale of jewellery. For the year ended 31 December 2008, the following
summarised cash inflows and outflows of The House of Howard Ltd. were
revealed by their books of account. The opening bank account balance on 1 Jan.
2008 was an overdraft of $600.

$
Cash received from customers
35,880
Cash paid for purchase of equipment
12,600
Cash inflow from debentures (debt instruments)
9,600
Cash paid to suppliers (creditors)
7,800
Cash inflow from extra capital raised during the year
6,000
Cash paid to buy display cabinets
2,100
Expenses paid in cash
14,720
Dividends received from investments in shares
2,000
Investments in shares made during the year
7,200
Dividends paid during the year
7,380
Cash received on sale of old car
1,000
Required
Prepare a Cash Flow Statement for the year ended 31 Dec. 2008 clearly
classifying the inflows and outflows into Operating, Investing and Financing. The
closing cash or overdraft balance must be clearly shown in the statement.
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Question 4
ACE Ltd., a company engaged in computer hardware business, has provided the
following information for the year ended 30 June 2008:
The business made a profit of $120,600 which was lower than that for the
previous year. This decrease in profits was mainly due to a reduction in sales in a
recessionary market. Total cash received from customers was $570,000 for the
year.
Other cash inflows & outflows were as follows:
Sale of car $33,200. Borrowings from bank $45,000. Additional capital raised
was
$ 100,000. Suppliers were paid a total of $209,000. Income tax paid on the
previous years profit was $62,000. Other expenses paid $252,000. New
machinery was purchased for $75,000 cash. Dividends of $35,000 were declared
and paid during the year. The bank balance at 1 July 2007 was $40,500.
Required
Using the above information, prepare a Statement of Cash Flows for the
period ended 30 June
2008.

Preparing Financial Reports

6 Class work

Tutorial

Question 5 Income Statement, Statement of changes in Equity

and Balance Sheet
The following information has been taken from the accounting records
of Mikes Mobile Phones:
Account

Debit

Credit

Sales of Mobile Phones

98,500

Long Term Loan

56,800

Equipment

47,500

Accounts Payable
Cost of Sales
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5,600
35,700
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Shop Fixtures

53,400

Wages Expense

45,000

Cash at Bank

2,100

Accumulated Depreciation - Equipment

-

8,000

Shop Fixtures

2,000

Accounts Receivable

12,600

Stock of Mobile Phones

8,200

Service Agreement Revenue

20,000

Wages Payable

1,200

Drawings

500

Depreciation Expense

4.900

Stock of Office Supplies

320

Cash in Cash Register

200

Office Supplies Used

80

Gas and Electricity used

600

Capital Mr. Mike Mobile

Total

19,000
$ 211,100

$ 211,100

Required
Prepare an Income Statement for Mikes Mobile Phones and a Statement of
Changes in Equity for the year ended 30 June 2013 and a Balance Sheet as at 30
June 2013 using the above information.

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Question 6 Statement of Cash Flows

Alpha Company has been operating successfully for over twenty years as a
medium sized manufacturer. Despite building a strong clientele and steadily
increasing sales year by year, 2009 has been difficult. The manager of Alpha
Company is confident that everything is alright as the reported profit for 2009 is
a healthy $375,900. The cash balance at end the year has reached $97,400, an
improvement from the start of the year.
The cash balance of Alpha Company at the start of the year was $62,600, and
was boosted considerably by receipts from customers totalling $1,972,000. A
further $254,000 is still owing from accounts receivable which is unlikely to be
collected within the next month as 90 day payment terms are offered to
customers.
Despite purchases of materials and supplies totalling $1,302,000, creditors were
only paid $1,150,000 during the year. Employees were paid $321,700 in wages
and other operating costs paid in cash totalled $246,900. Interest expense
increased considerably with the new loan. Total interest payments were $65,600
and tax paid based on 2008 earnings totalled $202,300.
Unfortunately, machinery and equipment that had been used since the
companys inception rapidly became obsolete during 2009, and continual
breakdowns disrupted the manufacturing process. The company was forced to
acquire $2,670,000 worth of plant and equipment on 120 day payment terms.
Payment was made as required within the terms offered.
The obsolete equipment was sold to a scrap merchant for $84,000 cash. Office
equipment was upgraded during the year, requiring an outflow of $39,700 in
cash. No other relevant cash transactions took place during the year.
Immediately after acquisition of the plant and equipment, Alpha Company issued
shares to raise $2,000,000 cash, and secured another $870,000 via a bank loan.
Dividends paid to shareholders in cash amounted to $195,000.
Required
Prepare the Statement of Cash Flows for Alpha Company for 2009 based on the
information provided. Explain and interpret the report.

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Alpha Company - Statement of Cash Flows for the year 2009:

Cash Flows from Operating Activities

Cash Flows from Investing Activities

Cash Flows from Financing Activities

Question 7 Multiple Choice Questions

1. A worksheet can be thought of as

a)a permanent accounting record.

b)an optional device used by accountants.
c)part of the general ledger.
d)part of the journal.
2. Closing entries
a) are prepared after the financial statements.
b) reduce the number of permanent accounts.
c) cause the revenue and expense accounts to have zero balances.
d) summarise the activity in every account.
3. Categories usually found on the face of a classified balance sheet
include
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a) assets, liabilities, owner equity.

b) revenues, expenses, profit.
c) cash receipts, cash payments.
d) retained earnings dividends.
4. Gross profit equals the difference between sales and
a) operating expenses.
b) cost of sales.
c) net profit.
d) cost of goods sold plus operating expenses.
5. The primary purpose of the cash flow statement is to
a) provide information about the investing and financing activities during a
period.
b) prove that revenues exceed expenses if there is a net income.
c) provide information about the cash receipts and cash payments during a
period.
d) facilitate banking relationships.
6. The order of presentation of activities on the cash flow statement is

a) operating, investing, financing.

b) financing, investing, operating.
c) operating, financing, investing.
d) financing, operating, investing.

Question 8
The following Account balances have been taken from records of Garden
Services at 30 June 2014:
CREDIT
ACCOUNT
DEBIT ($)
($)
Bank loan (due 31/07/2015)
6,000
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Fees - lawn mowing

Cash at bank
Petrol expenses
Account receivable
Capital -- Mr. L. Mower
Fees - garden maintenance
Lawn mowing equipment
Accumulated depreciation- Equipment
Accounts payable
Supplies expense
Rubbish removal expenses
Supplies on hand
Motor vehicles
Accumulated depreciation - Motor vehicles
Telephone expenses
Stationery expenses
Stationery on hand
Depreciation expense -Equipment
Depreciation expense Motor vehicle
Wages expense
Drawings

13,000
2,800
3,600
200
3,100
8,000
7,400
1,580
1,500
1,100
500
300
14,000
8,000
900
200
100
740
2,000
6,840
500

Total

41,180

41,180

Required
1. Prepare the general journal closing entries. Narrations are required.
2. Prepare a fully classified Balance Sheet as at 30 th June 2014.
3. Prepare a Statement of changes in Equity for the period ended 30 th June
2014.

Question 9
The following trial balance has been prepared for Gippsland Trailer Services
(proprietor M. Chang) as at 31 May 2014:

Petty cash
Bank
Accounts receivable
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Debit
$
150
26,660
15,100

Credit
$

Prepaid rent
Office supplies on hand (1 May, 2014)
Equipment
Accounts payable
Fees received in advance
Bank loan (due 31 December 2016)
Capital M. Chang
Drawings
Fees earned
Wages expense
Advertising
Total

1,800
320
11,520
1,000
1,900
5,700
43,000
700
8,400
3,150
600
60,000

60,000

Additional information provided

a) Four months rent was paid in advance on 1 May 2014.
b) A physical count of supplies on 31 May disclosed office supplies on hand of
$250.
c) Equipment was purchased on 1 Jan 2014. Its useful life was estimated to be
six years and its residual value was estimated to be $1,080. Gippsland
Trailers uses the straight line method of depreciation
d) An amount of $1,300 had been earned at 31 May 2014 for the fees previously
paid in advance.
e) The Bank loan was borrowed on 1 March 2014 at an interest rate of 8.0% per
annum with the first interest payment due on 31 August 2014.
f) Wages earned by employees for May but not paid amounted to $560.
Required
1) Prepare general journal entries to record the above adjustments at 31 May
2014.
(This part was to be completed in earlier weeks tutorials.)
2) After completing (1), prepare the adjusted trial balance.
3) Prepare the closing entries in the general journal.
4) Prepare the Income Statement and Statement of Changes in Equity for
the period ended 31 May 2014 and a Balance Sheet of Gippsland Trailers
as at 31 May 2014.

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