ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 44  October 2022 CPA Licensure Examination

FARAP-4418
FINANCIAL ACCOUNTING AND REPORTING / AUDITING PRACTICE
S. IRENEO  C. UBERITA  G. MACARIOLA  C. ESPENILLA  J. BINALUYO

FINANCIAL STATEMENTS:
STATEMENT of CASH FLOWS (SCF)
FINANCIAL ACCOUNTING AND 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 c. Zero
b. Acquisition price 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 c. I only
b. II and III 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
FINANCIAL STATEMENTS: SCF FARAP-4418
FINANCIAL ACCOUNTING AND 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 2021:
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
1. What is the net cash provided (used) from operating activities?
a. (P40,000) c. P 80,000
b. P60,000 d. P120,000
Problem 2: ALOCSIN231985 Company uses the direct method to prepare its statement of cash flows.
ALOCSIN231985 Company had the following cash flows during 2021:
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
2. What is the net cash provided (used) from investing activities?
a. (P1,040,000) c. P1,940,000
b. P1,640,000 d. (P2,240,000)
Problem 3: KCHIU191990 Company uses the direct method to prepare its statement of cash flows.
KCHIU191990 Company had the following cash flows during 2021:
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
3. What is the net cash provided (used) from financing activities?
a. P1,530,000 c. P1,880,000
b. P1,670,000 d. P1,950,000
Problem 4: DPADILLA261995 sold its equipment costing P300,000 and had a book value of P156,000 for
P180,000. Data from the comparative statements of financial position are:
12/31/21 12/31/20
Equipment P2,160,000 P1,950,000
Accumulated Depreciation 660,000 570,000
4. What is the amount of depreciation expense for 2021?
a. P36,000 c. P234,000
b. P54,000 d. P258,000

5. What is the amount of equipment purchased in 2021?

a. P 90,000 c. P300,000
b. P210,000 d. P510,000
Problem 5: JBINALUYO04 Corporation sold some of its plant assets during 2021. 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.

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
FINANCIAL STATEMENTS: SCF FARAP-4418
6. 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, 2021 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
Problem 6: The Statement of Financial Position of KMANUEL08 Company at the end of 2021 and 2022 follow:
2021 2022
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 2022:
• Net income for the year 2022 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
7. How much is the net cash provided by/used in operating activities?
a. P100,000 c. P2,000,000
b. P1,030,000 d. P3,130,000
8. How much is the net cash provided by/used in investing activities?
a. P100,000 c. P2,000,000
b. P1,030,000 d. P3,130,000
9. How much is the net cash provided by/used in financing activities?
a. P100,000 c. P2,000,000
b. P1,030,000 d. P3,130,000
Problem 7: GMAC10 Company’s worksheet for its 2021 statement of cash flows included the following:
December 31 January 1
Accounts receivable 280,000 222,000
Prepaid rent expense 82,000 124,000
Accounts payable 224,000 194,000
GMAC10 Company reported net income of P1,500,000 for the year ended 2021.
10. What amount should be reported as net cash flow provided by operating activities?
a. P1,514,000 c. P1,486,000
b. P1,510,000 d. P1,454,000

AUDITING PRACTICE
PROBLEM 1:
Comparative balance sheets for 2018 and 2017 and an income statement for 2018 are provided below for
Theodore Company. Additional information from the accounting records of Theodore is provided.
Theodore Company
BALANCE SHEETS
December 31, 2018 and 2017 (P in 000)
2018 2017
Assets:
Cash P1,800 P1,125
Accounts receivable 1,800 1,350
Inventory 2,700 1,575
Land 2,025 1,800
Building 2,700 2,700
Less: Accumulated depreciation (900) (810)
Equipment 8,550 6,750
Less: Accumulated depreciation (1,575) (1,440)
Patent 3600 4,500
P20,700 P17,550

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
FINANCIAL STATEMENTS: SCF FARAP-4418
Liabilities:
Accounts payable P2,250 P1,350
Accrued expenses payable 900 675
Lease liability—land 450 0
Stockholders’ equity:
Common stock 9,450 9,000
Paid-in capital in excess of par 2,250 2,025
Retained earnings 5,400 4,500
P20,700 P17,550
Theodore Company
INCOME STATEMENT
For the Year Ended December 31, 2018 (P in 000)
Revenues:
Sales revenue P7,935
Gain on sale of land 270 P8,205
Expenses:
Cost of goods sold P1,800
Depreciation expense-building 90
Depreciation expense-equipment 945
Loss on sale of equipment 45
Amortization of patent 900
Operating expenses 1,500 5,280
Net income P2,925
Additional information from the accounting records:
a) During 2018, equipment with a cost of P900,000 (90% depreciated) was sold.
b) The Retained Earnings account shows charges of P675,000 and P1,350,000 for stock dividends and cash
dividends, respectively.
Requirements:
1. Collections from customers
2. Cash disbursed for purchases
3. Net cash provided by operating activities
4. Net cash used in investing activities
5. Net cash used in financing activities
PROBLEM 2:
The differences in Sari-sari Company’s balance sheet accounts at December 31, 2018 and 2017 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 2018:
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
- END -

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