VENTURA, MARY MICKAELLA R

BSA 2-C – AMONG US

PAGE 321-325 – INTER 3

PROBLEM 5 – MULTIPLE CHOICE – COMPUTATIONAL

The next two items are based on the following:

Cotton Corp. reported profit of P420,000 for 2002. Changes occurred in several balance sheet accounts
as follows:
Equipment 35,000 increase
Accumulated depreciation 56,000 increase
Note payable 42,000 increase

Additional information:
 During 2002, Cotton sold equipment costing P35,000, with accumulated depreciation of
P16,800, for gain of P7,000.
 On December 31, 2002, Cotton purchased equipment costing P70,000 with 28,000 cash and a
12% note payable of P42,000.
 Depreciation expense for the year was P72,800.

1. In Cotton’s 2002 statement of cash flows, net cash provided by operating activities should be
a. 476,000
b. 485,800
c. 492,800
d. 499,800

Solution:
Profit 420,000
Gain on sale of equipment (7,000)
Depreciation expense 72,000
Net cash from operating activities 485,800

2. In Cotton’s 2002 statement of cash flows, net cash used in investing activities should be
a. 2,800
b. 16,800
c. 30,800
d. 49,000

Solution:
The entry for the sale of the equipment in reconstructed as follows:
Cash (squeezer) 25,200
Accumulated depreciation 16,000
Equipment 35,000
Gain 7, 000

Selling price of equipment sold 25,000

Cash payment for equipment purchased (28,000)
Net cash used in investing activities (2,800)
3. The following information was taken from the 2002 financial statements of Winchester Corporation:
Accounts receivable, Jan. 1 20x2 108,000
Accounts receivable, Dec. 31, 20x2 152,000
Sales on account and cash sales 2,190,000
Uncollectible accounts 5,000

No accounts receivable was written off or recovered during the year. If Winchester prepares a statement
of cash flows using the direct method, what amount should be reported as collected from customers in
2002?
a. 2,239,000
b. 2,234,000
c. 2,146,000
d. 2,141,000

Solution:
Accounts receivable
Jan. 1 108,000
Sales on account 2,190,000 cash collections
2,146,000 (squeeze)

152, 000

4. Dicksen Company’s income statement for the year ended December 31, 2002, reported profit of
P360,000. The financial statement also disclosed the following information:
Amortization 20,000
Depreciation 60,000
Increase in accounts receivable 140,000
Increase in inventory 48,000
Decrease in accounts payable 76,000
Increase in salaries payable 28,000
Dividends paid 120,000
Purchase of equipment 150,000
Increase in long-term note payable 300,000
Net cash provided by operating activities for 2002 should be reported as
a. 84,000
b. 204,000
c. 234,000
d. 324,000

Solution:
Profit for the year 360,000
Amortization 20,000
Depreciation 60,000
Increase in accounts receivable (140,000)
Increase in inventory (48,000)
Decrease in accounts payable (76,000)
Increase in salaries payable 20,000
Net cash from operating activities 204,000
5. The following information is available from the financial statements of Worthington Corporation for
the year ended December 31, 2002:
Profit 396,000
Depreciation expense 102,000
Decrease in accounts receivable 126,000
Increase in inventories 90,000
Increase in accounts payable 24,000
Payment of dividends 54,000
Purchase of FVOCI securities 22,000
Decrease in income taxes payable 16,000
What is Worthington Corporation’s net cash flows from operating activities?
a. 440,000
b. 466,000
c. 520,000
d. 542,000

Solution:
Profit 396,000
Depreciation expense 102,000
Decrease in accounts payable 126,000
Increase in inventories (90,000)
Increase in accounts payable 24,000
Decrease in income taxes payable (16,000)
Cash flows from operating activities 542,000

6. The following information is available from Ram Corporation’s accounting records for the year ended
December 31, 2002:
Cash paid to supplier and employees 1,020,000
Cash dividends paid 60,000
Cash received from customers 1,740,000
Rent received 20,000
Taxes paid 220,000
Net cash flow provided by operating activities for 2002 was
a. 440,000
b. 460,000
c. 500,000
d. 520,000

Solution:
Cash paid to supplier and employees (1,020,000)
Cash received from customer 1,740,000
Rent received 20,000
Taxes paid (220,000)
Cash flow from operating activities 520,000
7. Detmer Company’s rent payable was P40,000 at December 31, 2001, and P15,000 at December 31,
2002. Detmer’s income statement for 2002 reported rent expense as P10,000. What amount of cash
flows from operating activities for 2002 presented on a direct basis?
a. 10,000
b. 20,000
c. 35,000
d. 45,000

Solution:
Accounts receivable
40, 000, BEG
PAYMENT (SQUEEZE) 35, 000 10, 000, RENT

END 15, 000

8. Pecan Company sold a computer for P50,000. The computer’s original cost was P250,000, and the
accumulated depreciation at the date of sale was P180,000. The sale of the computer should appear on
Pecan’s annual statement of cash flows (indirect method) as
a. A reduction in cash flows from operating activities of P20,000 and an increase in cash flows from
investing activities of P50,000.
b. An increase in cash flows from operating activities of P20,000 and increase in cash flows from
investing
activities of P50,000.
c. A reduction in cash flows from operating activities of P20,000 and an increase in cash flows from
investing activities of P70,000.
d. An increase in cash flows from operating activities of P20,000 and an increase in cash flows from
investing activities of P70,000.

Solution:
Net proceeds less casrrying amount at P70,000 ( 250,000 – 150,000 ) = 20,000 loss. Added back to profit
when computing for the net cash flows operating activities under the indirect method.

9. Hale Inc. declared and paid cash dividends of P100,00 on ordinary shares and P75,000 on preference
shares.
How would these dividends be presented in Hale’s statement of cash flows?
a. As a P100,000 reduction in cash flows from investing activities.
b. As a P175,000 reduction in cash flows from investing activities.
c. As a P100,000 reduction in cash flows from financing activities.
d. As a P175,000 reduction in cash flows from financing activities.

Solution:
(100,000 + 175,000 total dividends paid, cash outflow under financing activities

10. During 2002, Lewis Corp. acquired buildings for P325,000, paying P75,000 cash and signing a 10%
mortgage note
payable in 10 years for the balance. How should the transaction be shown in the cash flow statement for
Lewisin 2002?
a. As a P325,000 reduction in cash flows from financing activities and a P250,000 increase in cash flows
from financing activities.
b. As a P325,000 reduction in cash flows from investing activities.
c. As a P75,000 reduction in cash flows from investing activities.
d. As a P250,000 increase in cash flows from financing activities