PRACTICE EXERCISES – CASH FLOW STATEMENT

MULTIPLE CHOICE - THEORIES

1. A gain on the sale of a plant asset should be presented in a statement of cash flows prepared using indirect
method as
a. A cash inflow from investing activities
b. A cash inflow from financing activities
c. An addition to net income
d. A deduction from net income
2. In a statement of cash flows prepared using the direct method, if wages payable increased during the year,
the cash paid for wages would be
a. The same as salary expense
b. Salary expense plus wages payable at the beginning of the year
c. Salary expense plus the increase in wages payable from the beginning to the end of the year
d. Salary expense less the increase in wages payable from the beginning to the end of the year
3. In a statement of cash flows using the direct method, which of the following would increase reported cash
flows from operating activities?
a. Dividends received from investments
b. Gain on sale of equipment
c. Gain on sale of a business segment
d. Sale of treasury stock
4. In a statement of cash flows, payments to acquire debt instruments of other entities would typically be
classified as cash outflows for
a. Financing activities c. Operating activities
b. Investing activities d. Equity activities
5. In a statement of cash flows, if equipment is sold at a gain, the amount shown as a cash inflow from
investing activities equals the carrying amount of the equipment
a. With no addition or subtraction
b. Plus the gain and less the amount of tax attributable to the gain
c. Plus both the gain and the amount of tax attributable to the gain
d. Plus the gain only
6. In a statement of cash flows, proceeds from issuing equity instruments should be classified as cash inflows
from
a. Brokerage activities c. Investing activities
b. Financing activities d. Operating activities
7. When preparing a statement of cash flows using the indirect method, the amortization of trademarks
should be reported as a(n)
a. Increase in cash flows from investing activities
b. Reduction in cash flows from investing activities
c. Increase in cash flows from operating activities
d. Reduction in cash flows from operating activities
8. A loss on the sale of machinery should be presented in a statement of cash flows (indirect method) as
a. A deduction from net income
b. An addition to net income
c. An inflow and outflow of cash
d. An outflow of cash
9. In preparing a statement of cash flows (indirect method), cash flows from operating activities
a. Is calculated as the difference between revenues and expenses plus the beginning cash balance
b. Is always equal to the sum of cash flows from investing activities and cash flow from financing activities
c. Can be calculated by appropriately adding to or deducting from net income those items in the income
statement that affect cash and accruals for current assets and current liabilities
d. Can be calculated by appropriately adding to or deducting from net income those items in the income
statement that do not affect cash.
10. In preparing a statement of cash flows, which of the following transactions would be considered an
investing activity?
a. Sale of a business segment
 b. Issuance of bonds payable at a discount
c. Purchase of treasury share
d. Sale of capital stock
11. In a statement of cash flows (indirect method), depreciation is treated as an adjustment to reported net
income because depreciation
a. Reduces the reported net income but does not involve an outflow of cash
b. Reduces the reported net income and involves an inflow of cash
c. Is an inflow of cash to a reserve account for asset replacement
d. Usually represents a significant portion of operating expenses
12. Cash equivalents would not include short-term investments in
a. Money market funds c. Commercial paper
b. FVOCI securities d. Certificates of deposit
13. In preparing a statement of cash flows, sale of treasury share at an amount greater than cost would be
classified as a(n)
a. Transfer activity c. Investing activity
b. Operating activity d. Financing activity
14. In a statement of cash flows, receipts from sales of property, plant and equipment would be classified as
cash inflows from
a. Liquidating activities c. Investing activities
b. Operating activities d. Financing activities
15. A decrease in accounts receivable should be presented in a statement of cash flows (direct method) as
a. An inflow and outflow of cash
b. An outflow of cash
c. A deduction from net income
d. An addition to net income

STRAIGHT PROBLEMS
1. A comparative balance sheet for Bell Industries is given below:

Bell Industries
Comparative Balance Sheet
December 31, 2022 and 2021

Assets 2022 2021

Cash 40,000 10,000
Accounts receivable 100,000 92,000
Merchandise inventory 30,000 43,000
Land, buildings and equipment 325,000 200,000
Accumulated depreciation - buildings and equipment (75,000) (50,000)
Total assets 420,000 295,000
Liabilities and Shareholders' Equity
Accounts payable 65,000 75,000
Ordinary share (P25 par) 275,000 200,000
Share premium 50,000 -
Retained earnings 30,000 20,000
Total liabilities & shareholders' equity 420,000 295,000

Additional data from the company’s records were:

a. On July 1, 2022, exchanged 1,500 ordinary shares for equipment.
b. On December 31, 2022, paid cash dividends of P40,000 and income taxes of P10,000.

Requirement: Prepare a cash flow statement for Bell Industries for the year ended December 31, 2022, using indirect
method.

2. The following is a comparative balance sheet for Top Ten Clothiers Inc. for the years 2022 and 2021:
 Top Ten Clothiers Inc.
Comparative Balance Sheet
December 31, 2022 and 2021

Assets 2022 2021

Cash 43,000 240,000
Accounts receivable 390,000 210,000
Merchandise inventory 360,000 450,000
Long-term investments - 120,000
Total assets 793,000 1,020,000
Liabilities and Shareholders' Equity
Accounts payable 150,000 240,000
Operating expenses payable 48,000 30,000
Bonds payable 140,000 200,000
Ordinary share 250,000 250,000
Retained earnings 205,000 300,000
Total liabilities & shareholders' equity 793,000 1,020,000

The income statement for the year ended December 31, 2022, follows:

Top Ten Clothiers Inc.

Income Statement
For the Year Ended December 31, 2022

Sales 1,120,000
Cost of goods sold:
Beginning inventory, January 1, 2022 450,000
Purchases 660,000
Cost of goods available 1,110,000
Less: Ending inventory, December 31, 2022 360,000 750,000
Gross profit from sales 370,000
Operating expenses 360,000
Operating income 10,000
Other revenues and expenses:
Loss on sale of long-term investment (15,000)
Net loss (5,000)

After paying cash dividends, the decrease in retained earnings totaled P95,000. Management is alarmed by the
shrinkage in the company’s cash position during 2022.

Requirement: Prepare a statement of cash flows for 2022 using the direct method.

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