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Chapter 6
Statement of Cash Flows
THEORY:
1. The net cash flow from operations must be reported using the direct method.
FALSE. it should be reported in both direct and indirect method
2. The direct method is generally favored by analysts and other users of cash flow statements.
false
3. Noncash items, such as depreciation expense, must be added to net income to arrive at net cash
provided by (used in) operating activities when the indirect method is used.
4. According to PAS 7 Statement of Cash Flows, an entity shall disclose the components of cash and
cash equivalents and shall present a reconciliation of the amounts in its statement of cash flows
with the equivalent items reported in the statement of financial position.
5. When using the indirect method, losses are subtracted from net income in computing cash flow
from operations.
6. The indirect method of reporting net cash flow from operations shows the operating cash
receipts and cash payments.
7. All transactions with investment securities, held for trading securities, FVOCI securities, and
amortized cost securities are reported in the investing section of the statement of cash flows.
8. The receipt of dividends should be classified as an operating activity only, while the payment of
dividends is to be classified as a financing activity only according to PAS 7.
9. When the indirect method is used, separate disclosure of interest paid and income taxes paid is
required.
10. Net cash provided by (used in) operating, financing, and investing activities are combined to
derive the amount of cash and cash equivalents at the end of the year.
“Be strong and courageous. Do not fear of be in dread of them, for it is the Lord your God who goes with you.
He will not leave you or forsake you.” (Deuteronomy 31:6)
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PROBLEM SOLVING:
1. Stiggins Corporation had the following account balances for 2002:
31-Dec 1-Jan
Accounts Payable 67,200 58,200
Prepaid Rent Expense 24,600 37,200
Accounts Receivable (net) 84,000 66,600
Stiggins' 2002 profit is ₱450,000. What amount should Stiggins include as net cash provided by
operating activities in its 2002 statement of cash flows?
a. 436,200 b. 445,200 c. 453,600 d. 454,200
2. Chow Company's 2002 income statement reported cost of goods sold as ₱135,000. Additional
information is as follows:
31-Dec-02 31-Dec-01
Inventory 30,000 22,500
Accounts Payable 13,000 19,500
If Chow uses the direct method, what amount should Chow report as cash paid to suppliers in its
2002 statement of cash flows?
a. 121,000 b. 134,000 c. 136,000 d. 149,000
Use the following for the next three questions:
Frye Company uses the direct method to prepare its statement of cash flows. The company had the
following cash flows during 2002:
Cash receipts from the issuance of ordinary shares 400,000
Cash receipts from customers 200,000
Cash receipts from dividends on long-term investments 30,000
Cash receipts from repayment of loan made to
220,000
another entity
Cash payments for wages and other operating expenses 120,000
Cash payments for insurance 10,000
Cash payments for dividends 20,000
Cash payments for taxes 40,000
Cash payment to purchase land 80,000
3. The net cash provided by (used in) operating activities is
a. 60,000 b. 40,000 c. 30,000 d. (20,000)
4. The net cash provided by (used in) investing activities is
a. 220,000 b. 140,000 c. 60,000 d. (80,000)
5. The net cash provided by (used in) all activities is
a. 580,000 b. 410,000 c. 380,000 d. (60,000)
“Trust in the Lord with all your heart and lean not on your own understanding; in all your ways acknowledge him,
and he will make your paths straight.” (Proverbs 3:5-6)
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