Chapter – The Cash Flow Statement CHAPTER THE CASH FLOW STATEMENT PROBLEMS 5-1 (Wilson Company) Cash flows from operating activities: Net income before income tax 780,000 +1,820,000 Adjustments for: Depreciation expense Patent amortization expense Income from investment in subsidiary Interest expense Operating income before working capital changes Increase in accounts receivable Decrease in accounts payable Cash generated from operations Interest paid Income tax paid Net cash from operating activities 5-2 (Bill Company) Cash flows from operating activities: Collections from customers Payments to suppliers and employees Cash generated from operations Interest paid Income taxes paid Net cash from operating activities P2,600,000 750,000 270,000 (480,000) 100,000 P3,240,000 (340,000) ( 26,000) P2,874,000 (82,000) (720,000) P2,072,000 P983,000 (675,000) P308,000 (82,000) (154,000) P 72,000 5-3 (Bean Company) (a) Indirect method Cash flows from operating activities: Net income before income tax Adjustments for: Depreciation expense Operating income before working capital changes Decrease in accounts receivable Increase in inventories Decrease in accounts payable Increase in salaries payable Cash generated from operations Income tax paid (66,000 – 12,000) Net cash from operating activities (b) Direct method Cash flows from operating activities: Collections from customers P220,000 80,000 P300,000 50,000 (89,000) (46,000) 24,000 P239,000 (54,000) P185,000 P1,050,00 (715,000) (96,000) P 239,000 54,000 P185,000 Payments to trade creditors Payments for salaries Cash generated from operations Income taxes paid Net cash from operating activities 5- 25 Chapter – The Cash Flow Statement Items that would be reported in the cash flow statement (indirect method) Depreciation expense of P120,000 is added to net income before income taxes 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) 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) 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, 2007 Cash flows from operating activities: Net income Adjustments for: Depreciation expense Operating income before working capital changes Decrease in accounts receivable Increase in inventory Decrease in accounts payable Net cash from operating activities Cash flows from investing activities: Purchase of equipment Cash flows from financing activities: Issue of common stock P550,000 Cash dividends paid (260,000) Net increase in cash Add cash balance, January Cash balance, December 31 P580,000 290,000 P870,000 110,000 (200,000) (90,000) P690,000 (880,000) 290,000 P100,000 42,000 P142,000 5-6 (Alpha Company) Alpha Company Cash Flow Statement For year ended December 31, 2007 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 P3,505,000 changes 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 26 P2,254,000 Chapter – The Cash Flow Statement Cash flows from investing activities: Proceeds from sale of plant assets Payments for purchase of plant assets Payments for purchase of investment in Omega Cash flows from financing activities: Receipts from issuance of common stock Receipts from issuance of notes Payments for dividends Increase in cash Add cash balance, beginning Cash balance, end P 800,000 (7,750,000) (4,000,000) P5,000,000 6,000,000 (1,200,000) (10,950,000) 9,800,000 P1,104,000 430,000 P1,534,000 Direct method) Alpha Company Cash Flow Statement For year ended December 31, 2007 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 (555,000) expenses Cash generated from operations P2,734,000 Interest paid ( 80,000) Income taxes paid (400,000) Net cash from operating activities 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 (4,000,000) Omega Cash flows from financing activities: Receipts from issuance of common stock Receipts from issuance of notes Payments for dividends Increase in cash Add Cash balance, beginning Cash balance, end (10,950,000) P5,000,000 6,000,000 (1,200,000) 5-7 (Ace Company) Ace Company Cash Flow Statement For year ended December 31, 2007 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 27 P2,254,000 9,800,000 P1,104,000 430,000 P1,534,000 Chapter – The Cash Flow Statement Increase in accounts payable Increase in trading securities Net cash from operating activities Cash flows from investing activities: Sale of equipment Purchase of property and equipment Sale of long-term investment Net cash flows from investing activities Cash flows from financing activities: Receipts from issuance of common stock Payments for dividends Net cash flows from financing activities Increase in cash Add cash balance, beginning Cash balance, end 300,000 (100,000) P 1,130,000 P420,000 (1,900,000) 280,000 (1,200,000) P1,000,000 (750,000) Purchase of equipment = 8,000,000 + 1,900,000 – 9,000,000 = 900,000 Depreciation expense = 2,200,000 + 400,0000 – 2,000,000 = 600,000 250,000 P 180,000 620,000 P 800,000 MULTIPLE CHOICE QUESTIONS Theory MC1 C MC2 A MC3 C MC4 D MC5 C MC6 A MC7 A MC8 D MC9 A MC10 C Problems MC21 D MC22 C MC23 C MC24 B MC25 B MC26 D MC27 C MC28 MC29 MC30 MC31 MC32 D C D A C MC33 MC34 MC35 MC36 MC37 MC38 MC39 MC40 B A D A D B C A MC11 MC12 MC13 MC14 MC15 MC16 MC17 MC18 MC19 MC20 D C D C A C D A D A 870,000 + 10,000 – 510,000 – 110,000 = 260,000 4,380,000 + 216,000 – 304,000 = 4,292,000 550,000 –500,000 + 125,000 = 175,000 250,000 + 550,000 – 600,000 – 450,000 = 250,000 200,000 + 500,000 – 250,000 = 450,000 750,000 – 29,000 + 21,000 + 15,000 = 757,000 260,000+40,000=300,000; 400,000–300,000=100,000; 100,000 +120,000-102,000 = 280,000 3,200,000 + 400,000 – 2,500,000 = 1,100,000 690,000-35,000-80,000+250,000+10,000+25,000+80,000 = 940,000 1,100,000 - 150,000 – 135,000 = 815,000 220,000 + 325,000 – 240,000 = 305,000 5,130,000 470,000 =430 ,000;1,820,000+80,0001,700,000=200,000; 430,000–200,000=230,000+30,000 = 260,000 149,000+17,000-13,000=153,000; 840,000+53,000-32,000=861,000 910,000-40,000+70,000+50,000 = 990,000 990,000 – 60,000 – 50,000 – 90,000 + 30,000 = 820,000 30,000 – 5,000 = 25,000 281,600 + 25,000 = 306,600 3,600,000 + 2,500,000 – 1,550,000 – 2,910,000 = 1,640,000 240,000 – 120,000 + 280,000 = 400,000 3,000,000+960,000–400,000=3,560,000;1,000,000+300,000–280,000 28 Chapter – The Cash Flow Statement MC41 MC42 MC43 MC44 B C B A MC45 D =1,020,00; 3,560,000 – 1,020,000 = 2,540,000 380,000 + 160,000 = 540,000 1,200,000 + 1,000,000 – 300,000 = 1,900,000 8,000,000 – 7,200,000 + 150,000 + 20,000 + 18,000 = 988,000 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 Dividends declared = 500,000 + 1,000,000 – 710,000 – 20,000 = 770,000 Dividends paid = 22,000 + 770,000 – 34,000 = 758,000 29 ... MC 15 MC16 MC17 MC18 MC19 MC20 D C D C A C D A D A 870,000 + 10,000 – 51 0,000 – 110,000 = 260,000 4,380,000 + 216,000 – 304,000 = 4,292,000 55 0,000 50 0,000 + 1 25, 000 = 1 75, 000 250 ,000 + 55 0,000... 3,200,000 + 400,000 – 2 ,50 0,000 = 1,100,000 690,000- 35, 000-80,000+ 250 ,000+10,000+ 25, 000+80,000 = 940,000 1,100,000 - 150 ,000 – 1 35, 000 = 8 15, 000 220,000 + 3 25, 000 – 240,000 = 3 05, 000 5, 130,000 470,000... 1 25, 000 = 1 75, 000 250 ,000 + 55 0,000 – 600,000 – 450 ,000 = 250 ,000 200,000 + 50 0,000 – 250 ,000 = 450 ,000 750 ,000 – 29,000 + 21,000 + 15, 000 = 757 ,000 260,000+40,000=300,000; 400,000–300,000=100,000;