Chapter # 26

Financial Statements

TRUE OR FALSE

1. Financial statements show the results of the management's stewardship of the resources entrusted to it. True
2. An entity cannot use titles for the statements other than those used in PAS 1. False
3. The arrangement of financial statements should be in the order of prominence such as the balance sheet is the
most important, followed by the income statement and so on. False
4. If management concludes that compliance with a requirement in an PFRS would be so misleading that it would
conflict with the objective of financial statements set out in the Conceptual Framework, the entity shall depart
from that requirement if the relevant regulatory framework requires, or otherwise does not prohibit, such a
departure. True
5. In assessing whether the going concern assumption is appropriate, management takes into account all available
information about the future, which is at least, but is not limited to, two years from the end of the reporting
period. False
6. The balance of net receivables represents the amount expected to be collected. True
7. Assets classified as property, plant, and equipment include office building. machinery, equipment, and land held
for capital appreciation. False
8. Accrued salaries and wages in a statement of financial position represent salaries and wages that have been paid
to employees but not yet earned. False
9. The external auditor of the entity has the ultimate responsibility for the financial statements. False
10. Vertical analysis involves expressing each item in the financial statements as a percentage of an appropriate total,
or base amount, within the same year. True
11. An example of horizontal analysis would be comparing this year's inventory to last year's inventory to calculate
the percentage change in inventory. True
12. A payment on account has no effect on working capital but will increase the current ratio if it is already greater
than 1.0. True
13. Comprehensive income is the total change in shareholders' equity that occurred during the period. False
14. Profit from continuing operations could include gains from non-operating activities. True
15. Material errors in prior periods' statements of profit or loss are corrected by making an adjustment to the
beginning balance of the current period's retained earnings. True
16. PFRS requires a company to classify expenses in a statement of profit or loss by function. False
17. Generally speaking, cash flows from operating activities include the elements of net profit or loss reported on a
cash basis. True
18. If the direct method is used to report cash flows from operating activities in the body of the statement of cash
flows, a reconciliation of net profit or loss to net cash flows from operating activities is also required. False
19. The purchase of treasury shares is an investing cash outflow. False
20. Cash paid for taxes and interest must be disclosed on the face of the statement or in the disclosure notes under
both the direct and indirect methods of reporting cash flows from operating activities. True
21. A decrease in cash dividends payable means that dividends declared were less than dividends paid. True
22. An entity shall prepare its financial statements using the accrual basis of accounting. False
23. Measuring assets net of valuation allowances-for example, obsolescence allowances on inventories and doubtful
debts allowances on receivables-is offsetting. False
24. As a minimum, two comparative periods of financial statements, the current year and the immediately preceding
year, are presented together with the related notes. True
25. An entity classifies the liability as non-current if the lender agreed by the end of the reporting period to provide a
period of grace ending at least twelve months after the reporting period, within which the entity can rectify the
breach and during which the lender cannot demand immediate repayment. True

MULTIPLE CHOICE-THEORIES

1. What is the objective of financial statements?

a. To prepare financial statements in accordance with all applicable Standards and Interpretations.
b. To prepare comparable, relevant, reliable and understandable information to investors and creditors.
c. To prepare a statement of financial position, an income statement, a statement of cash flows and a statement of
changes in equity.
d. To provide information about the financial position, performance and changes in financial position of an entity
that is useful to a wide range of users in making economic decisions.

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2. Which of the following reports is not a component of the financial statements according to PAS 1?
a. Director's report
b. Statement of changes in equity
c. Notes to the financial statements
d. Statement of financial position

3. Which of the following is not true about the presentation of financial statements?
a. Presentation of extraordinary items is required.
b. Impairment losses may be reversed in future periods.
c. The LIFO cost flow assumption is not allowed for inventories.
d. A separate statement of comprehensive income and separate statement of changes in equity are required.

4. MIRRI Inc. is a manufacturer of televisions. The domestic market for electronic goods is currently not doing well, and
therefore many entities in this business are switching to exports. As per the audited financial statements for the year
ended December 31, 2021, the entity had net losses of P2 million. At December 31, 2021, its current assets aggregate
to P20 million and the current liabilities aggregate to P25 million. Due to expected favorable changes in the
government policies for the electronics industry, the entity is projecting profits in the coming years. Furthermore, the
shareholders of the entity have arranged alternative additional sources of finance for its expansion plans and to
support its working needs in the next 12 months.

Should MIRRI Inc. prepare its financial statements under the going concern assumption?
a. No, until the situation improves in the coming years.
b. Yes, but with approval by the Securities and Exchange Commission (SEC).
c. No, as the net loss for the year was P2 million and there exists a working capital deficiency by P5 million.
d. Yes, due to mitigating factors such as arrangement of funding for the entity's expansion and working capital needs
and projected future profitability.

5. Which of the following statements is incorrect?

a. An entity shall present separately each material class of similar items.
b. If a line item is not individually material, it remains to be presented separately as a line item
c. An entity need not provide a specific disclosure required by PFRS if the information is not material, except when
required by law.
d. The final stage in the process of aggregation and classification is the presentation of condensed and classified
data, which form line items in the financial statements.

6. Which of the following offsetting cases is not permitted by PFRS?

a. Receivables from the carrier against the trade payables with supplier. The inventories were lost on transit before
the reporting period on term FOB shipping point.
b. An entity presents on a net basis gains and losses arising from a group of similar transactions, for example,
foreign exchange gains and losses or gains and losses arising on financial instruments held for trading, except
when material.
c. An entity presents gains and losses on the disposal of non-current assets, including investments and operating
assets, by deducting from the amount of consideration on disposal the carrying amount of the asset and related
selling expenses
d. An entity may net expenditure related to a provision that is recognized in accordance with PAS 37 Provisions,
Contingent Liabilities and Contingent Assets and reimbursed under a contractual arrangement with a third party
against the related reimbursement.

7. KARN Inc. decided to extend its reporting period from a year (12-month period) to a 15-month period. Which of the
following is not required under PAS 1 in case of change in reporting period?
a. KARN Inc. should disclose the reason for using a longer period than a period of 12 months.
b. KARN Inc. should disclose that comparative amounts used in the financial statements are not entirely comparable.
c. KARN Inc. should change the reporting period only if other similar entities in the geographical area in which it
generally operates have done so in the current year; otherwise, its financial statements would not be comparable
to others.
d. All the given statements are in accordance with PAS 1.

8. The level of rounding used in the financial statements refers to the

a. abbreviation of words used.
b. truncation of the amounts presented.
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c. shortening of the notes by removing comparative figures
d. presentation of a concise financial report rather than a full financial report.

9. If an entity chooses to present comparative information in addition to the minimum comparative financial statements
required by PFRSS (Le. third statement of profit or loss), which of the following must be observed?
a. A compilation service of an independent accountant must be obtained.
b. The entity should seek approval from the Securities and Exchange Commission.
c. The entity is required to present a third statement of financial position, third statement of changes in equity and
third statement of cash flows.
d. The entity is required to present, in the notes to the financial statements, the comparative information related to
that additional statement of profit or loss and other comprehensive income.

10. Which of the following is not specifically a required disclosure of PAS 1?

a. Names of major/ significant shareholders of the entity.
b. Level of rounding used in presenting the financial statements.
c. Whether the financial statements cover the individual entity or a group of entities.
d. Name of the reporting entity or other means of identification, and any change in that information from the
previous year.

11. Which of the following are not items required by PAS 1 Presentation of Financial Statements to be shown on the face of
the statement of financial position?
a. Government grants
b. Inventories
c. Intangible assets
d. Provisions

12. Which is a noncurrent asset?

a. Goods in process of production for sale in the ordinary course of business
b. Cash fund set aside for payment of equipment to be delivered a month after reporting period.
c. Equity investment acquired principally for generating a profit from short term fluctuation in price.
d. Amount due from customer within a period of 12 to 18 months in accordance with normal credit terms.

13. The primary objective of information about an entity's assets and liabilities is to be found in its
a. Statement of Cash Flows.
b. Statement of Financial Position.
c. Statement of Changes in Equity.
d. Notes to the Financial Statements.

14. Under PAS 1, Presentation of Financial Statements, which of the following is not required to be presented on the face
of the statement of comprehensive income?
a. Finance costs
b. Profit or loss
c. Income from ordinary activities
d. Tax expense

15. Which of the following characteristics may result in the classification of a liability as current?
a. Violation of provisions of a debt agreement.
b. Short-term obligations refinanced with long-term debt at the end of reporting period
c. Obligations for advance collections that involve long-term deferment of the delivery of goods
d. Debts to be liquidated from funds that have been accumulated and are reported as noncurrent

16. If the classification of expenses by function method is used for the presentation of an income statement, additional
information on the following items must be disclosed.
a. Revenue
b. Gains on disposal of assets
c. Gains on revaluation of assets
d. Depreciation and amortization expense

17. Which of the following would not be reflected in the statement of comprehensive income?
a. Revenues
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b. Correction of prior period errors
c. Income tax from continuing operations
d. Loss on disposal of a business segment
18. According to PFRSs, when a complete set of financial statements is presented, how are other comprehensive income
(OCI) and its components reported?
a. Must be reported in a separate statement.
b. May be reported in a single statement of comprehensive income or on disclosed in a statement of changes in
equity.
c. Must be reported in a separate statement or in a single statement of comprehensive income reporting all items of
income and expense for the period.
d. They are not required to be reported under IFRSs.

19. An objective of the statement of cash flows is to

a. disclose the change in working capital during the period.
b. disclose changes during the period in all asset and all equity accounts.
c. provide information about a company's operating, investing, and financing activities.
d. None of these answer choices are correct.

20. An entity shall report separately cash flows arising from investing and financing activities using
a. direct method.
b. indirect method.
c. either direct method or indirect method.
d. neither direct method nor indirect method.

21. Under the indirect method, which of the following items must be deducted from reported net income to determine the
net cash flow from operating activities?
a. amortization of bond discount.
b. decreases in current liabilities.
c. decreases in current assets.
d. depreciation of plant assets.

22. Which of the following items should be presented under Cash flows from investing activities?
a. Employee costs.
b. Property revaluation.
c. Redemption of debentures.
d. Development costs capitalized in the period.

23. Under PAS 7, interest payments can be classified as part of either

a. investing or financing activities.
b. operating or investing activities.
c. operating or financing activities.
d. operating, investing or financing activities.

24. Noncash investing and financing transactions include all of the following except
a. the conversion of debt to equity.
b. the acquisition of an entity by means of an equity issue.
c. noncash items such as depreciation, amortization and deferred taxes.
d. the acquisition of asset either by assuming directly related liability or by a means of a finance lease.

25. How should repayment of a long-term loan comprising repayment of the principal amount and interest due to date be
treated in a cash flow statement?
a. The repayment of the principal loan is an financing cash flow and the interest payment is either an operating cash
flow or investing cash flow.
b. The repayment of the principal loan is a financing cash flow and the interest payment is either an operating cash
flow or a financing cash flow.
c. The repayment of the principal loan is an investing cash flow and the interest payment is either an operating cash
flow or a financing cash flow.
d. The repayment of the principal loan is a financing cash flow and the interest payment is netted against interest
received on bank deposits and the net amount of interest is shown as operating cash flow.

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26. An entity purchased a building and the seller accepted payment partly in equity shares and partly in debentures of the
entity. Under PAS 7, this transaction should be treated in the statement of cash flows as which of the following?
a. The transaction does not belong in a statement of cash flows and should be disclosed only in the notes to the
financial statements.
b. The purchase of the building should be investing cash outflow and the Issuance of shares and the debentures
financing cash outflows.
c. The purchase of the building should be investing cash outflow and the financing cash outflow while the issuance
of shares issuance of debentures investing cash outflow.
d. Ignore the transaction totally since it is a noncash transaction.

27. Which of the following is not a correct match about key sources of estimation uncertainty?
a. Fair value measurement of financial instruments - Assumptions used include the discount rate, healthcare cost
inflation, mortality rates, withdrawal rates and membership.
b. Property, plant and equipment -In assessing the residual values, the remaining life of the asset, its projected
disposal value and future market conditions are taken into account.
c. Goodwill impairment - The value in use calculation requires the estimation of the future cash flows expected to
arise from the cash generating unit (CGU) and a suitable discount rate in order to calculate present value.
d. Inventory provisions - Inventory provisions include shrinkage, obsolescence and write-downs which take into
account historical information related to sales trends and stock counts and represent the expected write-down
between the estimated net realizable value and the original cost.

28. The summary of significant accounting policies should disclose

a. future minimum lease payments
b. retroactive effect of application of new PFRS.
c. revenue recognition policy for interest income.
d. the unfunded amount of pension benefit obligation.

29. A deficit occurs when a company's

a. retained earnings are less than its common stock.
b. retained earnings are less than assets minus liabilities.
c. dividends distributed are greater than comprehensive income.
d. dividends and cumulative losses are greater than cumulative net income.

30. Which of the following accounts is reported under equity of the statement of financial position?
a. Revenue
b. Share capital-ordinary
c. Dividend declared and paid
d. All of the choices are reported in the equity section of the statement of financial position

MULTIPLE CHOICE – PROBLEMS

A. The accounting clerk of Angel Company submitted the following condensed statement of financial position.
Angel Company
Statement of Financial Position.
December 31, 2021
Current assets 13,300,000 Current liabilities 15,300,000
Noncurrent assets 18,000,000 Noncurrent liabilities 4,000,000
Shareholders' equity 12.000.000
31.300.000 31.300.000

An examination of the account balances disclosed the following details:

Current assets
Cash on hand and in banks (includes plant expansion fund cash of P1,350,000) 2,950,000
Financial assets at fair value through profit or loss, at cost (market value at December 31, 2021
is P2,150,000) 2,300,000
Angel Company's ordinary share capital, 500 shares at cost 50,000
Accounts receivable - trade, after deducting P200,000 credit balance in customer's
account resulting from overpayment 2,800,000
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Inventories, including advertising supplies of P200,000 and goods still in transit of P1,300,000.
The goods were purchased under the terms FOB destination and the related invoice was received
and recorded on December 30, 2021. 5,200,000
13,300,000

Noncurrent assets
Property, plant and equipment (net of P5 M accum. depr) 15,000,000
Deposit with supplier for merchandise ordered for delivery in August, 2022 1,500,000
Goodwill recorded to cancel losses incurred in prior years 1,500,000
18,000,000
Current liabilities
Accrued salaries payable 400,000
Accrued income taxes 955,000
Unearned rent revenue 445,000
Trade accounts payable, after deducting P500,000 debit
balance in a supplier's account due to returns made after full payment 13,500,000
15,300,000
Noncurrent liabilities
6% Mortgage on property, plant and equipment payable in semiannual
installments of P500,000 every June 30 and December 31 4,000,000

Shareholders' equity
Preference share capital, P100 par (4,000 shares issued) 4,000,000
Ordinary share capital, P40 par (20,000 shares issued) * 8,000,000
12,000,000

*The ordinary shares were originally issued at a price of P10,000,000. The share premium was applied against losses of the
company for the past years.

(1) The total current assets at December 31, 2021 is

a. P11,950,000
b. P12,150,000
c. P12,650,000
d. P12,700,000
(2) The total current liabilities at December 31, 2021 is
a. P15,000,000
b. P15,700,000
c. P16,500,000
d. P17,000,000
(3) How much is the correct total shareholders' equity at December 31, 2021?
a. P10,300,000
b. P10,350,000
c. P11,800,000
d. P12,000,000

B. The following accounts and their balances appear in an unadjusted trial balance of Bestbuy Company as of December 31,
2021.

Cash and cash equivalents - 400,000 Inventory - 500,000

Trade and other receivables - 2,000,000 Trade and other payables - 670,000

Subscription receivable - 375,000 Income tax payable - 196,500

Additional information:
 Trade and other receivables include long term advances to company officers amounting to P430,000.
 The subscription receivable has the following call dates: June 30, 2022, P200,000; December 31, 2022, P100,000; and
June 30, 2023, P75,000.

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 Inventory of P500,000 was determined by physical count. At December 31, 2021, goods costing P125,000 are in
transit from a supplier. Terms of purchase of said goods is FOB shipping point. The goods and the related invoice have
not been received as of year-end.
 Trade and other payables include dividends payable amounting P170,000, of which P70,000 is payable in cash and
P100,00 distributable in Bestbuy's own shares.

(4) The total current assets at December 31, 2021 is

a. P2,595,000
b. P2,670,000
c. P2,770,000
d. P2,895,000

(5) The total current liabilities at December 31, 2021 is

a. P866,500
b. P891,500
c. P766,500
d. P731,500

C. A draft of the condensed statement of financial position for Bestfriend Company as of December 31, 2021 contains the
following list of assets and their balances:

Trade and other receivables P 147,000

Cash and cash equivalents 98,000
Deferred tax asset 85,000
Property, plant & equipment (net of P550,000 accum. depreciation) 3,200,000
Prepayments 130,000
Inventories 220,000

The following information has been obtained.

 Trade and other receivables included P60,000 sales price of goods in transit to customers at December 31, 2021,
P40,000 of which were shipped FOB shipping point. The company maintains a uniform mark up on cost at 25%.
 The inventory is based on physical count of goods at the close of business on December 31.
 Property, plant and equipment included the following:
- Land acquired in 2020 intended for future use costing P800,000
- Equipment costing P200,000 that is fully depreciated, but still being used by the entity
- Land and building, costing P200,000 and P950,000, respectively, being leased to various tenants under operating
leases. The accumulated depreciation of said building is P230,000.
- P248,000 purchase price of land with an undetermined future use.
 Included in prepayments is cash surrender value of officer's life insurance policy of P35,000.

(6) What is the correct amount of trade and other receivables at December 31, 2021?
a. P87,000
b. P107,000
c. P127,000
d. P147,000
(7) What is the correct amount of inventories at December 31, 2021?
a. P235,000
b. P236.000
c. P250,000
d. P252,000
(8) What is the correct amount of property, plant and equipment at December 31, 2021?
a. P1,832,000
b. P2,032,000
c. P2,280,000
d. P3,200,000
(9) What is the correct total non-current assets at December 31, 2021?
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a. P3,035,000
b. P3,120,000
c. P3,235,000
d. P3,320,000

D. At the beginning of the year, a corporation had total assets of P4,500,000, total liabilities of P2,000,000 and total share
capital of P800,000. During the year, the corporation earned profit of P525,000, paid cash dividends of P400,000 and
issued additional share capital for a total consideration of P300,000 At the end of the year, the company had total assets of
P6,700,000.

(10) What is the amount of the total liabilities at the end of the year?
a. P1,825,000
b. P2,925,000
c. P3,775,000
d. P4,875,000

E. Atlas Company reported post-tax profit of P491,400 for the year ended December 31, 2021. Cost of goods sold amounted
to P2,108,000 which is P270,000 greater than the net purchases during the year. Operating expenses amounted three
times the peso amount of income tax expense. Beginning inventory is three times the amount of ending inventory. Income
tax rate is 30%.

(11) How much were the total operating expenses during the year 2021?
a. P442,260
b. P552,620
c. P631,800
d. P638,100
(12) What was the amount of sales for the year 2021?
a. P3,441,800
b. P3,416,600
c. P3,418,000
d. P3,041,660

F. On January 2, 2021, Air, Inc. agreed to pay its former president P300,000 under a deferred compensation arrangement.
Air, Inc. should have recorded this expense in 2020 but did not do so. Air, Inc.'s reported income tax expense would have
been P105,000 lower in 2020 had it properly accrued this deferred compensation.

(13) In its December 31, 2021 financial statements, by how much should the beginning balance of its retained earnings be
adjusted?
a. P405,000
b. P300,000
c. P195,000
d. P105,000

G. Great Company's trial balance of income statement accounts for the year ended December 31, 2021 Included the
following:

Debit Credit
Sales 1,450,000
Cost of sales 600,000
Administrative expenses 150,000
Loss on sale of equipment 90,000
Sales salaries and commissions 100,000
Interest revenue 50,000
Freight out 30,000
Loss on retirement of bonds 100,000
Bad debts expense 30,000
1,100,000 1,500,000

Other information: Decrease in finished goods inventory during the year, P100,000.
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(14) What was Great Company's profit for the year 2021? (Income tax rate is 30%)
a. P400,000
b. P350,000
c. P280,000
d. P120,000

H. The total operating expenses of Well Co. for 2021 is 50% of cost of sales but only 30% of sales. Finance costs are 2% of
sales. The amount of purchases is 130% of cost of sales. Ending inventory is 25% greater than the beginning inventory.
The profit for the period after tax of 30% is P2,100,000.

(15) What is the amount of sales for 2021?

a. P26,250,000
b. P30,000,000
c. P35,000,000
d. P37,500,000

(16) By how much did the inventory change during 2021?

a. P6,750,000 increase
b. P6,750,000 decrease
c. P4,725,000 increase
d. P4,725,000 decrease

I. After its first three months of operations, the Greg Company had the following data on its operations:

Cost of goods manufactured amounted to P1,080,000.

Manufacturing costs were distributed as follows:
Direct materials used- 40%;
Direct labor-35%;
Manufacturing overhead-25%.
Work in process, March 31 were 20% of the total manufacturing costs.
Finished goods remaining in stock were 10% of the total cost of goods manufactured.

(17) How much was the direct labor cost incurred during the period?
a. P525,000
b. P472,500
c. P420,000
d. P108,000

J. The following pretax amounts pertain to Break Company for the year ended December 31, 2021:

Sales - P800,000; Distribution and administrative costs - P84,000; Other income - P40,000; Interest expense - P4,000;
Cost of goods sold - P480,000; Correction of prior period error (credit) - P16,000; Discontinued operations (debit)-
P40,000; Cumulative effect of change in accounting policy (credit) - P28,000; Retained earnings, January 1 (not
restated) - P160,000; Dividends declared P12,000; Income tax rate is 30%.

(18) How much retained earnings would be shown on December 31, 2021 statement of financial position?
a. P310,400
b. P335,600
c. P341,200
d. P344,800

K. On April 1, 2020, Burgundy Company purchased a machine at a cost of P500,000. The machine is being depreciated on the
straight-line basis over a five-year life without residual value. The company computes depreciation to the nearest month.
The bookkeeper overlooked this machine and no depreciation was "recognized in Burgundy's 2020 financial statements.
The error was discovered during the preparation of 2021 financial statements. Income tax rate is 30%.

(19) What is the amount of adjustment to the beginning balance of retained earnings in the 2021 statement of changes in
equity?
a. P75,000 debit
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b. P75,000 credit
c. P52,500 debit
d. P52,500 credit

L. On April 30, 2021, Vegas Company approved a plan to dispose of a segment of its business. At this date, the entity is
committed to a plan to sell the segment and classifies its assets as Held for Sale. The carrying value of the segment's net
assets at April 30 was P800,000. In compliance with PFRS 5, no further depreciation or amortization was taken up on
these assets until they were sold in November. During November, disposal costs incurred by Vegas totaled P22,500.
During the period January 1, 2021 through November 30, 2021, the segment had total revenues of P4,500,000 and total
selling and administrative expenses of P4,080,000. On November 30, 2021, the segment's net assets were sold for
P850,000. The income tax rate is 30%.

(20) What is the single amount reported as discontinued operations in Vegas' profit or loss for 2021?
a. P447,500
b. P397,500
c. P313,250
d. P278,250

M. On August 1, 2021, Circus Company approved a formal plan to sell a business segment. The sale is expected to take place
on February 1, 2022. Operating income of the segment from January 1 to August 1, 2021 was P1,500,000 and operating
income of the segment from August 1 to December 31, 2021 was P100,000. On August 1, 2021, the carrying amount of the
segment's net assets was P4,000,000 and the fair value less cost to sell at December 31, 2021 was P3,800,000. Assume an
income tax rate of 30%.

(21) How much is reported in Circus Company's 2021 statement of comprehensive income under the caption "Discontinued
Operations"?
a. P1,600,000
b. P1,400,000
c. P1,120,000
d. P980,000

N. The following income statement is for Twitter Company for the year ended December 31, 2021.
Sales P4,050,000
Cost of goods sold 2,340,000
Gross profit P1,710,000
Gain on sale of equipment 40,000
Operating expenses:
Salaries and wages P535,420
Depreciation expense 70,000
Insurance expense 24,580
Rent expense 160,000
Loss on sale of equity securities at FVPL 5,000 (795,000)
Interest expense ( 30,000)
Profit before tax P 925,000
Income tax expense 277,500
Profit for the period P 647,500

Changes in current asset and current liability accounts during the year, all of which related to operating activities, were as
follows: Accounts receivable - P600,000 increase; Notes receivable (trade) - P230,000 decrease; Merchandise Inventory-
P520,000 decrease; Prepaid expense-P52,250 decrease, Accounts payable - P430,000 decrease; Salaries and wages payable -
P30,000 Increase Interest payable - P5,800 decrease; Income tax payable - P25,000 Increase

(22) How much were the collections from customers during the year 2021?
a. P4,880,000
b. P4,420,000
c. P3,680,000
d. P3,220,000
(23) How much were the payments made to suppliers during the year 2021?
a. P3,290,000
b. P2,250,000
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c. P2,430,000
d. P1,390,000
(24) How much were the payments for operating expenses during 2021? (Do not include interest and income tax)
a. P802,250
b. P742,250
c. P697,750
d. P637,750

(25) What is the amount reported as net cash flow from operating activities during the year 2021?
a. P861,050
b. P811,450
c. P503,950
d. P292,250

O. The following items are taken from the records of Smart Company for 2021.
 Profit for the year, P1,470,000 (net of 30% income tax)
 Payment for purchase of land, P400,000
 Payment for retirement of bonds, P600,000
 Depreciation expense, P750,000
 Proceeds from issuance of ordinary shares, P700,000
 Loss on retirement of bonds, P12,500
 Income from investment in associates, P480,000
 Unrealized gain on equity investments at fair value through profit or loss, P13,000
 Patent amortization expense, P270,000
 Interest expense, P100,000 (This amount includes amortization of discount on bonds payable prior to its Increase in
accounts receivable, P340,000 retirement in the amount of P14,500)
 Payment of dividends, P500,000
 Decrease in accounts payable, P26,000
 Decrease in notes payable, P180,000 (This amount includes payment of notes payable to bank of P150,000)
 Decrease in interest payable, P18,000
 Increase in income tax payable, P60,000

(26) What is the amount of cash generated from operating activities reported in Smart's 2021 statement of cash flows?
a. P2,385,500
b. P2,343,500
c. P2,329,000
d. P2,193,500
(27) How much was the interest paid during 2021?
a. P118,000
b. P103,500
c. P100,000
d. P 96,500
(28) How much was the income tax paid during 2021?
a. P690,000
b. P630,000
c. P570,000
d. P500,000

P. The following information was taken from the accounting records of Pat, Inc. for 2021.
Proceeds from issuance of preference shares 4,000,000
Dividends paid on preference shares 400,000
Bonds payable converted to ordinary shares 2,000,000
Payment for purchase of machinery 500,000
Proceeds from sale of plant building 1,200,000
Retirement of bonds payable 2,500,000
2% bonus issue on ordinary shares 300,000
Purchase of ordinary treasury shares 120,000
Payment for purchase of debt securities at amortized cost 450,000
Gain on sale of plant building 200,000

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(29) How much is the net cash flow from investing activities during 2021?
a. P250,000
b. P450,000
c. P700,000
d. P750,000
(30) How much is net cash flow from financing activities during 2021?
a. P3,600,000
b. P3,480,000
c. P980,000
d. P530,000

Q. The following information is taken from the records of Ad Company for 2021.
Post-tax profit 11,200,000
Amortization of premium of debt securities at amortized cost 600,000
Purchase of equipment 6,000,000
Depreciation expense 940,000
Decrease in accounts receivable 800,000
Decrease in accounts payable 2,800,000
Issuance of long-term note payable for cash 4,200,000
Increase in inventories 3,500,000
Gain on sale of land 920,000
Increase in prepaid assets 290,000
Decrease in income tax payable 1,280,000
Payment of cash dividends 1,800,000
Increase in wages payable 68,000
Patent amortization expense 650,000

(31) How much is the net cash flow from operating activities during 2021?
a. P6,748,000
b. P5,548,000
c. P5,468,000
d. P4,268,000

R. The following is a list of items to be included in the preparation of the 2021 statement of cash flows from the Ram
Company.
Gain on retirement of bonds 92,000
Increase in inventory 67,000
Proceeds from sale of investment 85,000
Proceeds from issuance of note 250,000
Depreciation expense 107,000
Decrease in accounts receivable 50,000
Payment for purchase of patent 198,000
Decrease in accounts payable 40,000
Payment of dividends 300,000
Net profit 554,000
Ordinary share exchanged for land 140,000
Payment to retire bonds 370,000
Payment for purchase of equipment 394,000
Loss on sale of investments 48,000
Repurchase of treasury shares 120,000
Proceeds from issue of preference shares 528,000
Amortization of discount on debt securities at amortized cost 15,000

(32) How much is the net cash flow from operating activities during 2021?
a. P575,000
b. P560,000
c. P554,000
d. P545,000
(33) How much is the net cash flow from investing activities during 2021?
a. P507,000
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b. P367,000
c. P(507,000)
d. P(367,000)

(34) How much is the net cash flow from financing activities during 2021?
a. P260,000
b. P12,000
c. P(260,000)
d. P(12,000)

S. The following information is taken from the unadjusted trial balance of Hanzel Corporation at December 31, 2021.
Debit Credit
Sales P7,200,000
Interest revenue 430,000
Cost of goods sold P3,750,000
Salaries expense 1,360,000
Interest expense 540,000
Income tax expense 300,000

In addition, the following changes occurred in selected accounts during

Accounts receivable 610,000 credit

Inventory 980,000 debit
Accounts payable 700,000 credit
Salaries payable 90,000 debit
Interest payable 40,000 credit

(35) How much is the total cash receipts from operating activities during 2021?
a. P8,240,000
b. P7,810,000
c. P7,020,000
d. P6,590,000
(36) How much is the total cash payments made for operating activities during 2021?
a. P6,320,000
b. P6,280,000
c. P5,950,000
d. P5.620,000

T. FB Company prepares its statement of cash flows using the direct method for operating activities. For the year ended
December 31, 2021, FB Company reports the following activity:

Sales on account 1,300,000

Cash sales 740,000
Decrease in accounts receivable 610,000
Increase in accounts payable 72,000
Increase in inventory 48,000
Cost of goods sold 975,000

(37) What is the amount of cash collections from customers reported by FB Company for the year ended December 31, 2021?
a. P2,040,000
b. P1,910,000
c. P2,650,000
d. P1,430,000
(38) What is the amount of cash payments to suppliers reported by FB Company for the year ended December 31, 2021?
a. P951,000
b. P999,000
c. P1,095,000
d. P855,000

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