Chapter 5 The Cash Flow Statement

CHAPTER 5
THE CASH FLOW STATEMENT

PROBLEMS

5-1 (Wilson Company)

Cash flows from operating activities:
Net income before income tax 780,000 +1,820,000 P2,600,000
Adjustments for:
Depreciation expense 750,000
Patent amortization expense 270,000
Income from investment in subsidiary (480,000)
Interest expense 100,000
Operating income before working capital changes P3,240,000
Increase in accounts receivable (340,000)
Decrease in accounts payable ( 26,000)
Cash generated from operations P2,874,000
Interest paid (82,000)
Income tax paid (720,000)
Net cash from operating activities P2,072,000

5-2 (Bill Company)

Cash flows from operating activities:
Collections from customers P983,000
Payments to suppliers and employees (675,000)
Cash generated from operations P308,000
Interest paid (82,000)
Income taxes paid (154,000)
Net cash from operating activities P 72,000

5-3 (Bean Company)

(a) Indirect method
Cash flows from operating activities:
Net income before income tax P220,000
Adjustments for:
Depreciation expense 80,000
Operating income before working capital changes P300,000
Decrease in accounts receivable 50,000
Increase in inventories (89,000)
Decrease in accounts payable (46,000)
Increase in salaries payable 24,000
Cash generated from operations P239,000
Income tax paid (66,000 12,000) (54,000)
Net cash from operating activities P185,000

(b) Direct method

Cash flows from operating activities:
Collections from customers P1,050,000
Payments to trade creditors (715,000)
Payments for salaries (96,000)
Cash generated from operations P 239,000
Income taxes paid 54,000
Net cash from operating activities P185,000

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Chapter 5 The Cash Flow Statement

5- 4
Items that would be reported in the cash flow statement (indirect method)
1. Depreciation expense of P120,000 is added to net income before income taxes.
2. Net gain of P5,000 from sale of machine is deducted from net income 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.

5-5 Glad Company (Indirect method)

Glad Company
Cash Flow Statement
For year ended December 31, 2010
Cash flows from operating activities:
Net income P580,000
Adjustments for:
Depreciation expense 290,000
Operating income before working capital changes P870,000
Decrease in accounts receivable 110,000
Increase in inventory (200,000)
Decrease in accounts payable (90,000)
Net cash from operating activities P690,000
Cash flows from investing activities:
Purchase of equipment (880,000)
Cash flows from financing activities:
Issue of common stock P550,000
Cash dividends paid (260,000) 290,000
Net increase in cash P100,000
Add cash balance, January 1 42,000
Cash balance, December 31 P142,000

5-6 (Alpha Company)

Alpha Company
Cash Flow Statement
For year ended December 31, 2010
Cash flows from operating activities:
Net income before income taxes P2,955,000
Adjustments for:
Depreciation expense 750,000
Gain on sale of plant assets (300,000)
Interest expense 100,000
Operating income before working capital changes P3,505,000
Increase in accounts receivable (600,000)
Increase in prepaid rent (6,000)
Decrease in accounts payable (285,000)
Increase in salaries payable 120,000
Cash generated from operations P2,734,000
Interest paid ( 80,000)
Income taxes paid (400,000)
Net cash from operating activities P2,254,000

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Chapter 5 The Cash Flow Statement

Cash flows from investing activities:

Proceeds from sale of plant assets P 800,000
Payments for purchase of plant assets (7,750,000)
Payments for purchase of investment in Omega (4,000,000) (10,950,000)
Cash flows from financing activities:
Receipts from issuance of common stock P5,000,000
Receipts from issuance of notes 6,000,000
Payments for dividends (1,200,000) 9,800,000
Increase in cash P1,104,000
Add cash balance, beginning 430,000
Cash balance, end P1,534,000

Direct method)
Alpha Company
Cash Flow Statement
For year ended December 31, 2010
Cash flows from operating activities:
Cash receipts from customers P5,400,000
Cash payments for salaries (1,980,000)
Cash payments for rent (131,000)
Cash payments for miscellaneous expenses (555,000)
Cash generated from operations P2,734,000
Interest paid ( 80,000)
Income taxes paid (400,000)
Net cash from operating activities P2,254,000
Cash flows from investing activities:
Proceeds from sale of plant assets P 800,000
Payments for purchase of plant assets (7,750,000)
Payments for purchase of investment in Omega (4,000,000) (10,950,000)
Cash flows from financing activities:
Receipts from issuance of common stock P5,000,000
Receipts from issuance of notes 6,000,000
Payments for dividends (1,200,000) 9,800,000
Increase in cash P1,104,000
Add Cash balance, beginning 430,000
Cash balance, end P1,534,000

5-7 (Ace Company)

Ace Company
Cash Flow Statement
For year ended December 31, 2010
Cash flows from operating activities:
Net income P 480,000
Adjustments for:
Depreciation expense 600,000
Loss on sale of equipment 80,000
Impairment loss on goodwill 100,000
Amortization of discount on bonds payable 50,000
Gain on sale of long-term investments (30,000)
Increase in accounts receivable (500,000)
Decrease in inventory 150,000
Increase in accounts payable 300,000
Increase in trading securities (100,000)

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Chapter 5 The Cash Flow Statement

Net cash from operating activities P 1,130,000

Cash flows from investing activities:
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 (1,200,000)
Cash flows from financing activities:
Receipts from issuance of common stock P1,000,000
Payments for dividends (750,000)
Net cash flows from financing activities 250,000
Increase in cash P 180,000
Add cash balance, beginning 620,000
Cash balance, end P 800,000
Purchase of equipment = 8,000,000 + 1,900,000 9,000,000 = 900,000
Depreciation expense = 2,200,000 + 400,0000 2,000,000 = 600,000

MULTIPLE CHOICE QUESTIONS

Theory
MC1 C MC11 D
MC2 A MC12 C
MC3 C MC13 D
MC4 D MC14 C
MC5 C MC15 A
MC6 A MC16 C
MC7 A MC17 D
MC8 D MC18 A
MC9 A MC19 D
MC10 C MC20 A
Problems
MC21 D 870,000 + 10,000 510,000 110,000 = 260,000
MC22 C 4,380,000 + 216,000 304,000 = 4,292,000
MC23 C 550,000 500,000 + 125,000 = 175,000
MC24 B 250,000 + 550,000 600,000 450,000 = 250,000
MC25 B 200,000 + 500,000 250,000 = 450,000
MC26 D 750,000 29,000 + 21,000 + 15,000 = 757,000
MC27 C 260,000+40,000=300,000; 400,000300,000=100,000; 100,000 +120,000-
102,000 = 280,000
MC28 D 3,200,000 + 400,000 2,500,000 = 1,100,000
MC29 C 690,000-35,000-80,000+250,000+10,000+25,000+80,000 = 940,000
MC30 D 1,100,000 - 150,000 135,000 = 815,000
MC31 A 220,000 + 325,000 240,000 = 305,000
MC32 C 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
MC33 B 149,000+17,000-13,000=153,000; 840,000+53,000-32,000=861,000
MC34 A 910,000-40,000+70,000+50,000 = 990,000
MC35 D 990,000 60,000 50,000 90,000 + 30,000 = 820,000
MC36 A 30,000 5,000 = 25,000
MC37 D 281,600 + 25,000 = 306,600
MC38 B 3,600,000 + 2,500,000 1,550,000 2,910,000 = 1,640,000
MC39 C 240,000 120,000 + 280,000 = 400,000
MC40 A 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

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Chapter 5 The Cash Flow Statement

MC41 B 380,000 + 160,000 = 540,000

MC42 C 1,200,000 + 1,000,000 300,000 = 1,900,000
MC43 B 8,000,000 7,200,000 + 150,000 + 20,000 + 18,000 = 988,000
MC44 A 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
MC45 D Dividends declared = 500,000 + 1,000,000 710,000 20,000 = 770,000
Dividends paid = 22,000 + 770,000 34,000 = 758,000

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