INTERMEDIATE ACCOUNTING 3

QUIZ 2 FINALS
NAME ___Ara May T. Flores___ SCORE ___________

Test 1 – TRUE OR FALSE

1. Users of financial statements can better predict an entity’s future cash flows if they have
access to the entity’s statement of cash flows. TRUE
2. Original maturity, for the determination of cash equivalency, is defined as the date of
original issuance. FALSE
3. A two-year treasury note purchased six weeks prior to maturity would not qualify as a
cash equivalent. TRUE
4. To qualify as a cash equivalent, an item generally must be readily convertible to cash and
have an original maturity of three months or less. TRUE
5. Any change made in a company’s policy concerning which securities are to be treated as
cash equivalents should be disclosed. FALSE
6. A transaction involving the issuance of equity securities in exchange for land and
building would be excluded from the statement of cash flows. TRUE
7. For a manufacturing entity, cash receipts from interest revenue are reported as an
operating activity only. FALSE
8. Cash payments to lenders for interest expense may be considered a financing activity.
TRUE
9. Cash payments to repay principal amounts borrowed may be treated as a financing
activity. TRUE
10. The purchase of treasury stock is reported as an investing activity. FALSE
Test II – Multiple choice
1. A gain on the sale of a plant asset should be presented in a statement of cash flows
prepare using the indirect method as
a. A cash inflow from operating activities
b. A cash inflow from financing activities
c. An addition to net income
d. A deduction from net income
2. In a statement of cash flows using the direct method, which of the following would
increase reported cash flows from operating activities?
a. Dividends received from investments
b. Gain on sale of equipment
c. Gain on sale of a business segment
d. Sale of treasury stock
 3. A loss on the sale of machinery should be presented in a statement of cash flows
(indirect method) as
a. A deduction from net income
b. An addition to net income
c. An inflow and outflow of cash
d. An outflow of cash
4. In a statement of cash flows, receipts from sales of property, plant and equipment
would be classified as a (n)
a. Liquidating activities c. Investing activities
b. Operating activities d. Financing activities
5. A decrease in accounts receivable should be presented in a statement of cash flows
(indirect method) as
a. An inflow and outflow of cash c. A deduction from net income
b. An outflow of cash d. An addition to net income

Test III – Problem solving

A comparative balance sheet for Blue Industries is given below:
Blue Industries
Comparative Balance Sheet
December 31, 20x2 and 20x1

Assets 20x2 20x1

Cash 40,000 10,000
Accounts receivable 100,000 92,000
Merchandise inventory 30,000 43,000
Land, buildings, and equipment 325,000 200,000
Accumulated depreciation-buildings and
Equipment (75,000) (50,000)
Total assets 420,000 295,000

Liabilities & Stockholders’ equity

Accounts payable 65,000 75,000
Common stock (P25 par) 275,000 200,000
Paid-in capital in excess of par 50,000 -
Retained earnings 30,000 20,000
Total liabilities & Stockholders’ equity 420,000 295,000

Additional data from company’s records were:

a. On July 1, 20x2, exchanged 1,500 shares of common stock for equipment.

 b. On December 31, 20x2, paid cash dividends of P40,000 and income taxes of P10,000.

REQUIRED: Prepare a cash flow statement for Blue Industries for the year ended December
31, 20x2, using indirect method.
Blue Industries
Statement of Cash Flows
For the Year Ended December 31, 20x2
Cash flows from operating activities:
Net income ₱ 50,000.00
Adjustments:
Depreciation Expense 25,000.00
Increase in accounts receivable (8,000.00)
Decrease in merchandise inventory 13,000.00
Decrease in accounts payable (10,000.00) 20,000.00
Net cash by operating activities: 70,000.00
Cash flows from financing activities:
Payment of cash dividends (40,000.00)
Net cash in financing activities (40,000.00)
Net increase in cash 30,000.00
Cash at the beginning of the year 10,000.00
Cash at the end of the year ₱ 40,000.00

ANSWER: