ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY FARAP-4518

CPA Review Batch 45  May 2023 CPA Licensure Examination

FINANCIAL ACCOUNTING & REPORTING / AUDITING PRACTICE S. IRENEO  G. MACARIOLA  C. ESPENILLA  J. BINALUYO

STATEMENT OF CASH FLOWS

FINANCIAL ACCOUNTING & REPORTING - THEORIES
1. The primary purpose of the cash flow statement is
a. To provide relevant information about cash receipts and cash payments of an enterprise during a
period
b. To help investors, creditors and other users to assess the enterprise’s ability to generate positive
future net cash flows
c. To disclose separately noncash investing and financing activities
d. To assess the ability of the enterprise to pay dividends to stockholders
2. An enterprise should prepare a cash flow statement and should present it as
a. Supplementary financial statement
b. Note to financial statement
c. Supporting schedule for amount appearing as cash and cash equivalent
d. Integral part of the enterprise’s basic financial statements
3. In a cash flow statement, depreciation is treated as an adjustment to reported net earnings because
depreciation
a. Is a direct source of cash
b. Reduces reported net earnings but does not involve an outflow of cash
c. Reduces reported net earnings and involves an inflow of cash
d. Is an inflow of cash to a reserve account for replacement of assets
4. In a cash flow statement, which of the following would increase reported cash flows from operating activities
using the direct method?
a. Cash received from customers
b. Loss on sale of equipment
c. Gain on early retirement of bonds
d. Cash paid to suppliers
5. In a cash flow statement using indirect method, a decrease in prepaid expense should be
a. Reported as an outflow and inflow of cash
b. Reported as an outflow of cash
c. Deducted from net income
d. Added to net income
6. In a cash flow statement using indirect approach for operating activities an increase in accrued expense should
be presented as
a. Outflow of cash
b. Inflow and Outflow of cash
c. Addition to net income
d. Deduction from net income
7. A company acquired a building, paying a portion of the purchase price in cash and issuing a mortgage note
payable to the seller for the balance. In a cash flow statement, what amount is included in investing activities
for the transaction?
a. Cash payment
b. Acquisition price
c. Zero
d. Mortgage amount
8. In a cash flow statement, which of the following items is/are reported as a cash flow from financing activities?
I. Payments to retire mortgage notes
II. Cash dividend received
III. Cash dividend paid
a. I, II, III
b. II and III
c. I only
d. I and III
9. In the cash flow statement, alternatively, interest received and dividend received may be classified as cash
flow from
a. Operating activities
b. Investing activities
c. Financing activities
d. Revenue activities
10. Cash payments to owners to acquire or redeem the enterprise’s shares are
a. Cash inflows from financing activities
b. Cash outflows for financing activities
c. Cash inflows from investing activities
d. Cash outflows for investing activities

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP-4518
STATEMENT of CASH FLOWS

FINANCIAL ACCOUNTING & REPORTING - PROBLEMS

Problem 1:
VSOTTO281954 Company uses the direct method to prepare its statement of cash flows. VSOTTO281954
Company had the following cash flows during 2023:
Cash receipts from issuance of ordinary shares P800,000
Cash receipts from customers 400,000
Cash receipts from dividends on long term investments 60,000
Cash receipts from repayment of loan made
to another company 440,000
Cash payments for wages & other operating expenses 240,000
Cash payment for insurance 20,000
Cash payments for dividends 40,000
Cash payments for taxes 80,000
Cash payment to purchase land 160,000
What is the net cash provided (used) from operating activities?
a. (40,000) b. 60,000 c. 80,000 d. 120,000

Problem 2:
ALOCSIN231985 Company uses the direct method to prepare its statement of cash flows. ALOCSIN231985
Company had the following cash flows during 2023:
Cash receipts from sale of an old van P 160,000
Cash receipts from issuance of ordinary shares 2,000,000
Cash receipts from issuance of 10%, 10-year bonds 1,500,000
Cash receipts from customers 1,000,000
Cash receipts from repayment of loan made
to other company 1,200,000
Cash receipts for dividends 150,000
Cash receipts as interest 150,000
Cash payments for operating expenses 650,000
Cash payments for taxes 300,000
Cash payments for equity securities bought 900,000
Cash payments for equipment purchased 300,000
Cash payments for land acquired 1,200,000
What is the net cash provided (used) from investing activities?
a. (1,040,000) b. 1,640,000 c. 1,940,000 d. (2,240,000)

Problem 3:
KCHIU191990 Company uses the direct method to prepare its statement of cash flows. KCHIU191990 Company
had the following cash flows during 2023:
Cash receipts from issuance of bonds P 800,000
Cash receipts from issuance of ordinary shares 1,400,000
Cash receipts from customers 700,000
Cash receipts from dividends on long term investments 105,000
Cash receipts from repayment of loan made to another company 660,000
Cash payments for wages & other operating expenses 420,000
Cash payment for reacquisition of treasury shares 250,000
Cash payments for dividends 70,000
Cash payments for taxes 140,000
Cash payment to purchase land 280,000
What is the net cash provided (used) from financing activities?
a. 1,530,000 b. 1,670,000 c. 1,880,000 d. 1,950,000

Problem 4:
JBINALUYO04 Corporation sold some of its plant assets during 2023. The original cost of the plant assets was
P600,000 and the accumulated depreciation at the date of sale was P560,000. The proceeds from the sale of the
plant assets were P85,000.

The information concerning the sale of the plant assets should be shown on JBINALUYO04’s statement of cash
flows (indirect method) for the year ended December 31, 2023 as?
a. A subtraction from net income of P45,000 and a P40,000 increase in cash flow from financing activities.
b. An addition to net income of P45,000 and an P85,000 increase in cash flow from investing activities.
c. A subtraction from net income of P45,000 and an P85,000 increase in cash flow from investing activities.
d. An addition of P85,000 to net income

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP-4518
STATEMENT of CASH FLOWS

Problem 5: The Statement of Financial Position of KMANUEL08 Company at the end of 2022 and 2023 follow:
2022 2023
CASH 350,000 2,350,000
ACCOUNTS RECEIVABLE, net 700,000 800,000
MERCHANDISE INVENTORY 850,000 1,050,000
LAND 3,500,000 4,000,000
EQUIPMENT 4,400,000 5,300,000
ACCUMULATED DEPRECIATION 800,000 1,050,000
ACCOUNTS PAYABLE 550,000 600,000
BONDS PAYABLE 2,100,000 2,100,000
NOTE PAYABLE-Long-term -0- 500,000
ORDINARY SHARE, P100 par 4,000,000 5,000,000
SHARE PREMIUM-Ordinary 1,750,000 2,450,000
RETAINED EARNINGS 1,300,000 1,800,000
TREASURY SHARES, at cost (700,000) -0-
Additional information for the year 2023:
• Net income for the year 2023 was P3,000,000
• Cash dividends were declared and paid
• Equipment costing P200,000 was sold for P70,000 with book value of P50,000.
• Purchased Equipment for cash
• Land with a fair value of P500,000 was acquired through issuance of long-term note
• Issued 10,000 ordinary shares for cash at P150 per share
• Sold its entire treasury shares for cash at P900,000

1. How much is the net cash provided by/used in operating activities?

a. 100,000 b. 1,030,000 c. 2,000,000 d. 3,130,000

2. How much is the net cash provided by/used in investing activities?

a. 100,000 b. 1,030,000 c. 2,000,000 d. 3,130,000

3. How much is the net cash provided by/used in financing activities?

a. 100,000 b. 1,030,000 c. 2,000,000 d. 3,130,000

AUDITING PRACTICE
PROBLEM 1:
The differences in Sari Company’s balance sheet accounts at December 31, 2022 & 2021 are presented below:
Inc (Dec)
Cash and cash equivalents 120,000
Available for sale securities 300,000
Accounts receivable, net -
Inventory 80,000
Long-term investment (100,000)
Plant assets 700,000
Accumulated depreciation _____-_____
Total 1,100,000
Liabilities and Stockholders’ Equity
Accounts Payable and Accrued Liabilities (5,000)
Dividends Payable 160,000
Short term bank debt 325,000
Long – term debt 110,000
Ordinary share capital, P10 par 100,000
Share premium reserve 120,000
Retained Earnings 290,000
Total 1,100,000

The following additional information relates to 2022:

a. Net income was P790,000.
b. Cash dividends of P500,000 were declared.
c. Building costing P600,000 and having a carrying amount of P350,000 was sold for P350,000.
d. Equipment costing P110,000 was acquired through issuance of long-term debt.
e. A long-term investment was sold for P135,000. There were no other transactions affecting long-term
investments.
f. 10,000 shares of ordinary share were issued for P22 a share.

Requirements:
1. Net cash provided by operating activities
2. Net cash used in investing activities
3. Net cash provided by financing activities

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