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CHAPTER 23
STATEMENT OF CASH FLOWS
CHAPTER LEARNING OBJECTIVES
1. Describe the usefulness and format of the statement of cash flows.
2. Prepare a statement of cash flows.
3. Contrast the direct and indirect methods of calculating net cash flow from operating
activities.
4. Discuss special problems in preparing a statement of cash flows.
5. Explain the use of a worksheet in preparing a statement of cash flows.
Test Bank for Intermediate Accounting, IFRS Edition, 3e
23 - 2
TRUE FALSE—Conceptual
1. The primary purpose of the statement of cash flows is to provide cash-basis information
about the company’s operating, investing, and financing activities.
2. The statement of cash flows provides information to help investors and creditors assess
the cash and non-cash investing and financing transactions during the period.
3. Companies classify some cash flows relating to investing or financing activities as
operating activities.
4. The first step in the preparation of the statement of cash flows is to determine the net cash
flow from operating activities.
5. The net increase (decrease) in cash reported on the statement of cash flows should
reconcile the beginning and ending cash balances reported in the comparative statements
of financial position.
6. The basis recommended by the IASB for the statement of cash flows is actually “cash and
cash equivalents.”
7. IFRS does not allow flexibility regarding the classification of certain items on the
statement of cash flows.
8. Most companies using IFRS show dividends paid as a financing activity.
9. The first step in preparing a statement of cash flows is to determine the change in cash.
10. A company reconciles net income to net cash flow from operating activities when using
the direct method or the indirect method.
11. The IASB encourages the use of the indirect method over the direct method.
12. Under the accrual basis of accounting, net income is usually the same as net cash flow
from operating activities.
13. When prepaid expenses decrease during a period, expenses on the accrual-basis are
lower than they are on a cash-basis.
14. The IASB encourages the use of the direct method over the indirect method for the
presentation of the statement of cash flows.
15. The IASB does not permit the direct method presentation of the statement of cash flows.
16. The most contentious decision that the IASB faced related to cash flow reporting was
choosing between the direct method and the indirect method of determining net cash flow
from operating activities.
17. Income from an investment in ordinary shares using the equity method is added to net
income in computing net cash provided from operating activities.
Statement of Cash Flows
23 - 3
18. Cash receipts from customers are computed by adding a decrease in accounts receivable
to revenue from sales.
19. Cash payments for operating expenses are computed by subtracting an increase in
prepaid expenses and a decrease in accrued expenses payable from operating expenses.
20. The direct method, also called the reconciliation method, reports cash receipts and cash
disbursements from operating activities.
21. The indirect method adjusts net income for items that affected reported net income but did
not affect cash.
22. A company should add back bond premium amortization to net income to arrive at net
cash flow from operating activities.
23. Companies report the cash flows from purchases and sales of trading invesments as cash
flows from operating activities.
24. Significant non-cash transactions are disclosed either in a separate schedule or in the
notes to the financial statements.
25. IAS 7 indicates that cash flows related to interest received and paid, and dividends
received and paid, should be separately disclosed in the statement of cash flows
26. Presently, the IASB and the FASB are involued in a joint project on the presentation and
organization of information in the financial statements.
27. The IASB favors presentation of operating cash flows using the direct method only, but
the FASB does not.
28. The majority of IASB members express a preference for not requiring use of the direct
method of reporting operating cash flows.
29. When numerous adjustments are necessary, companies often use a cash flow worksheet
instead of preparing a statement of cash flows.
30. The issuance of share dividends is entered on the cash flow worksheet, but is not
reported in the statement of cash flows.
True-False Answers—Conceptual
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Test Bank for Intermediate Accounting, IFRS Edition, 3e
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MULTIPLE CHOICE—Conceptual
31. An objective of the statement of cash flows is to
a. disclose changes during the period in all asset and all equity accounts.
b. disclose the change in working capital during the period.
c. provide information about a company’s operating, investing, and financing activities.
d. None of these answer choices are correct.
32. The primary purpose of the statement of cash flows is to provide information
a. about the operating, investing, and financing activities of a company during a period.
b. that is useful in assessing cash flow prospects.
c. about the cash receipts and cash payments of a company during a period.
d. about the entity's ability to meet its obligations, its ability to pay dividends, and its
needs for external financing.
S33. Of the following questions, which one would not be answered by the statement of cash
flows?
a. Where did the cash come from during the period?
b. What was the cash used for during the period?
c. Were all the cash expenditures of benefit to the company during the period?
d. What was the change in the cash balance during the period?
S34. The first step in the preparation of the statement of cash flows requires the use of
information included in which comparative financial statements?
a. Statements of cash flows
b. Statements of financial positions
c. Income statements
d. Statements of retained earnings
35. Cash equivalents are
a. treasury bills, commercial paper, and money market funds purchased with excess
cash.
b. investments with original maturities of three months or less.
c. readily convertible to known amounts of cash.
d. All of these answer choices are correct.
36. A company borrows €10,000 and signs a 90-day nontrade note payable. In preparing a
statement of cash flows (indirect method), this event would be reflected as a(n)
a. addition adjustment to net income in the cash flows from operating activities section.
b. cash outflow from investing activities.
c. cash inflow from investing activities.
d. cash inflow from financing activities.
37. Which of the following under IFRS, but not U.S. GAAP is considered to be part of cash
and cash equivalents?
a. Treasury bills
b. bank overdrafts
c. commercial paper
d. money market funds
Statement of Cash Flows
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38. All of the following are required by IFRS for the statement of cash flows except:
a. The operating activities section.
b. The financing activities section.
c. The investing activities section.
d. Significant non-cash transactions.
39. Under IFRS where a company uses the indirect method, which of the following would not
be reported in the statement of cash flows?
a. Depreciation expense.
b. Retirement of bonds payable.
c. An increase in inventory.
d. Purchase of equipment using a note.
S40. To arrive at net cash provided by operating activities, it is necessary to report revenues
and expenses on a cash basis. This is done by
a. re-recording all income statement transactions that directly affect cash in a separate
cash flow journal.
b. estimating the percentage of income statement transactions that were originally
reported on a cash basis and projecting this amount to the entire array of income
statement transactions.
c. eliminating the effects of income statement transactions that did not result in a
corresponding increase or decrease in cash.
d. eliminating all transactions that have no current or future effect on cash, such as
depreciation, from the net income computation.
P41. Xanthe Corporation had the following transactions occur in the current year:
1. Cash sale of merchandise inventory.
2. Sale of delivery truck at book value.
3. Sale of Xanthe ordinary shares for cash.
4. Issuance of a note payable to a bank for cash.
5. Sale of an investment held as an available-for-sale investment.
6. Collection of loan receivable.
How many of the above items will appear as a cash inflow from investing activities on a
statement of cash flows for the current year?
a. Five items
b. Four items
c. Three items
d. Two items
P42. Which of the following would be classified as a financing activity on a statement of cash
flows?
a. Declaration and distribution of a share dividend
b. Deposit to a bond sinking fund
c. Sale of a loan receivable
d. Payment of interest to a creditor
S43. The amortization of bond premium on long-term debt should be presented in a statement
of cash flows (using the indirect method for operating activities) as a(n)
a. addition to net income.
b. deduction from net income.
c. investing activity.
Test Bank for Intermediate Accounting, IFRS Edition, 3e
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d. financing activity.
S44. Crabbe Company reported $80,000 of selling and administrative expenses on its income
statement for the past year. The company had depreciation expense and an increase in
prepaid expenses associated with the selling and administrative expenses for the year.
Assuming use of the direct method, how would these items be handled in converting the
accrual based selling and administrative expenses to the cash basis?
Increase in
Depreciation Prepaid Expenses
a. Deducted From Deducted From
b. Added To Added To
c. Deducted From Added To
d. Added To Deducted From
45. In a statement of cash flows, the cash flows from investing activities section should report
a. the issuance of ordinary shares in exchange for a factory building.
b. share dividends received.
c. a major repair to machinery charged to accumulated depreciation.
d. the factoring of accounts receivable.
46. When preparing a statement of cash flows (indirect method), an increase in ending
inventory over beginning inventory will result in an adjustment to reported net earnings
because
a. cash was increased while cost of goods sold was decreased.
b. cost of goods sold on an accrual basis is lower than on a cash basis.
c. acquisition of inventory is an investment activity.
d. inventory purchased during the period was less than inventory sold resulting in a net
cash increase.
47. When preparing a statement of cash flows, a decrease in accounts receivable during a
period would cause which one of the following adjustments in determining cash flow from
operating activities?
Direct Method Indirect Method
a. Increase Decrease
b. Decrease Increase
c. Increase Increase
d. Decrease Decrease
48. In determining net cash flow from operating activities, a decrease in accounts payable
during a period
a. means that income on an accrual basis is less than income on a cash basis.
b. requires an addition adjustment to net income under the indirect method.
c. requires an increase adjustment to cost of goods sold under the direct method.
d. requires a decrease adjustment to cost of goods sold under the direct method.
49. When preparing a statement of cash flows, an increase in accounts payable during a
period would require which of the following adjustments in determining cash flows from
operating activities?
Indirect Method Direct Method
a. Increase Decrease
b. Decrease Increase
c. Increase Increase
Statement of Cash Flows
23 - 7
d. Decrease Decrease
50. When preparing a statement of cash flows, a decrease in prepaid insurance during a
period would require which of the following adjustments in determining cash flows from
operating activities?
Indirect Method Direct Method
a. Increase Decrease
b. Decrease Increase
c. Increase Increase
d. Decrease Decrease
51. When preparing a statement of cash flows, the following are used for which method in
determining cash flows from operating activities?
Gross Accounts Receivable Net Accounts Receivable
a. Indirect Direct
b. Direct Indirect
c. Direct Direct
d. Neither Indirect
52. Which of the following statements is correct?
a. The indirect method starts with income before income taxes.
b. The direct method is known as the reconciliation method.
c. The direct method is more consistent with the primary purpose of the statement of
cash flows.
d. All of these answer choices are correct.
53. When using the indirect method to prepare the operating section of a statement of cash
flows, which of the following is added to net income to compute cash provided by/used by
operating activities?
a. Increase in accounts receivable.
b. Gain on sale of land.
c. Amortization of patent.
d. All of these answer choices are added to net income to arrive at cash flow from
operating activities.
54. When using the indirect method to prepare the operating section of a statement of cash
flows, which of the following is deducted from net income to compute cash provided
by/used by operating activities?
a. Decrease in accounts receivable.
b. Gain on sale of land.
c. Amortization of patent.
d. All of these answer choices are deducted from net income to arrive at cash flow from
operating activities.
55. Which of the following is false concerning the statement of cash flows?
a. When pension expense exceeds cash funding, the difference is deducted from
investing activities on the statement of cash flows.
b. The IASB requires companies to classify all income taxes paid as operating cash
outflows.
c. Under IFRS, the purchase of land by issuing ordinary shares will be shown as a cash
outflow under investing activities and a cash inflow under financing activities.
Test Bank for Intermediate Accounting, IFRS Edition, 3e
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d. All of these answer choices are false concerning the statement of cash flows.
56. Which of the following best represents the group that expressed to the IASB a strong
preference in favor of the direct method of the statement of cash flows?
a. Public companies
b. Private companies
c. Commercial lending officers
d. None of these answer choices are correct.
57. All of the following are arguments in favor of using the indirect (reconciliation) method as
opposed to the direct method for reporting a statement of cash flows except:
a. By providing a reconciliation between net income and cash provided by operations,
the differences are highlighted.
b. The direct method is nothing more than a cash basis income statement which will
confuse and create uncertainty for financial statement users who are familiar with the
accrual-based income statements.
c. The direct method would probably lead to additional preparation cost because the
financial records are not maintained on a cash basis.
d. The indirect method shows higher quality cash flows from investing and financing
activities.
58. An increase in inventory balance would be reported in a statement of cash flows using the
indirect method (reconciliation method) as a(n)
a. addition to net income in arriving at net cash flow from operating activities.
b. deduction from net income in arriving at net cash flow from operating activities.
c. cash outflow from investing activities.
d. cash outflow from financing activities.
59. A statement of cash flows typically would not disclose the effects of
a. ordinary shares issued at an amount greater than par value.
b. share dividends declared.
c. cash dividends paid.
d. a purchase and immediate retirement of treasury shares.
60. When preparing a statement of cash flows (indirect method), which of the following is not
an adjustment to reconcile net income to net cash provided by operating activities?
a. A change in interest payable
b. A change in dividends payable
c. A change in income taxes payable
d. All of these answer choices are adjustments.
61. Declaration of a cash dividend on ordinary shares affects cash flows from operating
activities under the direct and indirect methods as follows:
Direct Method Indirect Method
a. Outflow Inflow
b. Inflow Inflow
c. Outflow Outflow
d. No effect No effect
62. All of the following would appear as significant non-cash transactions in the notes to the
financial statements, except:
Statement of Cash Flows
23 - 9
a. issuance of shares for attomey services
b. issuance of shares to liquidate debt
c. issuance of bonds for land
d. issuance of preference shares
63. In 2019, Witherby Inc issued 1,000 ordinary shares of €10 par value for land worth
€40,000. If Witherby uses IFRS, how would the company most likely reported the
transaction on the statements of cash flows?
a. It is reported as net cash provided by financing activities.
b. It is reported as net cash used by financing activities.
c. It is not presented on the statement of cash flows;it will be presented in the notes to
the financial statement as significant non-cash transactions.
d. None of these answer choices are acceptable
64. If non-cash investing and financing activities are part cash and part non-cash, which of the
following is true?
a. Companies should report only the cash portion on the statement of cash flows and
ignore the non-cash component.
b. Companies should report the non-cash component in a separate note and report the
cash portion on the statement of cash flows.
c. Companies should report the cash portion lass the cash equivalent of the non-cash
component on the statement of cash flows.
d. None of these answer choices are correct.
65. Dolan Company reports its income from investments under the equity method and
recognized income of €25,000 from its investment in Moss Co. during the current year,
even though no dividends were declared or paid by Moss during the year. On Dolan's
statement of cash flows (indirect method), the €25,000 should
a. not be shown.
b. be shown as cash inflow from investing activities.
c. be shown as cash outflow from financing activities.
d. be shown as a deduction from net income in the cash flows from operating activities
section.
66. Which of the following is shown on a statement of cash flows?
a. A share dividend
b. A share split
c. An appropriation of retained earnings
d. None of these answer choices are correct
S67. How should significant non-cash transactions be reported in the statement of cash flows?
a. They should be incorporated in the statement of cash flows in a section labeled,
"Significant Noncash Transactions."
b. Such transactions should be incorporated in the section (operating, financing, or
investing) that is most representative of the major component of the transaction.
c. These noncash transactions are not to be incorporated in the statement of cash flows.
They appear in a note to the financial statements.
d. They should be handled in a manner consistent with the transactions that affect cash
flows.
Test Bank for Intermediate Accounting, IFRS Edition, 3e
23 - 10
68. All of the following could potentially be classified as either operating or investing cash
flows under IFRS, except:
a. Interest received
b. Dividends received
c. Taxes paid that are specifically identified with investing
d. Dividends paid
69. Most of the companies interpret IFRS to mean that significant non-cash transactions
should be reported
a. in the cash flow statement.
b. in the notes to the financial statement.
c. in the statement of financial position.
d. in a separate schedule which is part of the statement of cash flows.
70. All of the following statements are true regarding IAS 7, except:
a. The objective of this Standard is to require the provision of information about the
historical changes in cash and cash equivalents of an entity by means of a statement
of cash flows which classifies cash flows during the period from operating, investing
and financing activities.
b. The objective of IAS 7 is to analyze working capital as a basis of all cash flow
activities.
c. Under IAS, cash flows of an entity are seen as useful in providing users of financial
statements with a basis to assess the ability of the entity to generate cash and cash
equivalents and the needs of the entity to utilize those cash flows.
d. IAS 7 indicates that cash flows related to interest received and paid, and dividends
received and paid, should be separately disclosed in the statement of cash flows.
Multiple Choice Answers—Conceptual
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Statement of Cash Flows
23 - 11
MULTIPLE CHOICE—Computational
Use the following information for questions 71 through 75.
Harlan Mining Co. has recently decided to go public and has hired you as an independent CPA.
One statement that the enterprise is anxious to have prepared is a statement of cash flows.
Financial statements of Harlan Mining Co. for 2019 and 2018 are provided below.
STATEMENT OF FINANCIAL POSITION
12/31/19 12/31/18
Property, plant and equipment €304,000 €480,000
Less accumulated depreciation (160,000) 144,000 (152,000) 328,000
Inventory 192,000 240,000
Accounts receivable 180,000 108,000
Cash 204,000 96,000
€720,000 €772,000
Share capital-ordinary €108,000 €108,000
Retained earnings 168,000 120,000
Bonds payable 180,000 300,000
Income taxes payable 176,000 196,000
Accounts payable 88,000 48,000
€720,000 €772,000
INCOME STATEMENT
For the Year Ended December 31, 2019
Sales €4,200,000
Cost of sales 3,576,000
Gross profit 624,000
Selling expenses €300,000
Administrative expenses 96,000 396,000
Income from operations 228,000
Interest expense 36,000
Income before taxes 192,000
Income taxes 48,000
Net income € 144,000
The following additional data were provided:
1. Dividends for the year 2019 were €96,000.
2. During the year, equipment was sold for €120,000. This equipment cost €176,000 originally
and had a book value of €144,000 at the time of sale. The loss on sale was incorrectly
charged to cost of sales.
3. All depreciation expense is in the selling expense category.
Questions 71 through 75 relate to a statement of cash flows (direct method) for the year ended
December 31, 2019, for Harlan Mining Company.
71. The net cash provided by operating activities is
a. €204,000.
b. €144,000.
c. €120,000.
d. €100,000.
Test Bank for Intermediate Accounting, IFRS Edition, 3e
23 - 12
72. The net cash provided (used) by investing activities is
a. €(176,000).
b. €24,000.
c. €120,000.
d. €(144,000).
73. Under the direct method, the cash received from customers is
a. €4,272,000.
b. €4,128,000.
c. €4,200,000.
d. €4,220,000.
74. Under the direct method, the total taxes paid is
a. €48,000.
b. €20,000.
c. €28,000.
d. €68,000.
75. The net cash provided (used) by financing activities is
a. €(120,000).
b. €24,000.
c. €(216,000).
d. €96,000.
76. During 2019, Stout Inc. had the following activities related to its financial operations:
Carrying value of convertible preference shares in Stout,
converted into ordinary shares of Stout £ 360,000
Payment in 2019 of cash dividend declared in 2018 to
preference shareholders 186,000
Payment for the early retirement of long-term bonds payable
(carrying amount £2,220,000) 2,250,000
Proceeds from the sale of treasury shares (on books at cost of £258,000) 300,000
The amount of net cash used in financing activities to appear in Stout's statement of cash
flows for 2019 should be
a. £1,590,000.
b. £1,776,000.
c. £2,136,000.
d. £2,148,000.
77. Hager Company sold some of its plant assets during 2019. The original cost of the plant
assets was €750,000 and the accumulated depreciation at date of sale was €700,000.
The proceeds from the sale of the plant assets were €105,000. The information
concerning the sale of the plant assets should be shown on Hager's statement of cash
flows (indirect method) for the year ended December 31, 2019, as a(n)
a. subtraction from net income of €55,000 and a €50,000 increase in cash flows from
financing activities.
b. addition to net income of €55,000 and a €105,000 increase in cash flows from
investing activities.
c. subtraction from net income of €55,000 and a €105,000 increase in cash flows from
investing activities.
d. addition of €105,000 to net income.
Statement of Cash Flows
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78. An analysis of the machinery accounts of Noller Company for 2019 is as follows:
Machinery, Net of
Accumulated Accumulated
Machinery Depreciation Depreciation
Balance at January 1, 2019 €500,000 €125,000 €375,000
Purchases of new machinery in 2019
for cash 200,000 — 200,000
Depreciation in 2019 — 100,000 (100,000)
Balance at Dec. 31, 2019 €700,000 €225,000 €475,000
The information concerning Noller's machinery accounts should be shown in Noller's
statement of cash flows (indirect method) for the year ended December 31, 2019, as a(n)
a. subtraction from net income of €100,000 and a €200,000 decrease in cash flows from
financing activities.
b. addition to net income of €100,000 and a €200,000 decrease in cash flows from
investing activities.
c. €100,000 increase in cash flows from financing activities.
d. €200,000 decrease in cash flows from investing activities.
79. Equipment which cost €213,000 and had accumulated depreciation of €114,000 was sold
for €111,000. This transaction should be shown on the statement of cash flows (indirect
method) as a(n)
a. addition to net income of €12,000 and a €111,000 cash inflow from financing activities.
b. deduction from net income of €12,000 and a €99,000 cash inflow from investing
activities.
c. deduction from net income of €12,000 and a €111,000 cash inflow from investing
activities.
d. addition to net income of €12,000 and a €99,000 cash inflow from financing activities.
80. During 2019, equipment was sold for €156,000. The equipment cost €252,000 and had a
book value of €144,000. Accumulated Depreciation—Equipment was €687,000 at
12/31/18 and $735,000 at 12/31/19. Depreciation expense for 2019 was
a. €60,000.
b. €96,000.
c. €156,000.
d. €192,000.
Use the following information for questions 81 and 82.
Equipment that cost £300,000 and had a book value of £156,000 was sold for £180,000. Data
from the comparative statements of financial position are:
12/31/19 12/31/18
Equipment £2,160,000 £1,950,000
Accumulated Depreciation 660,000 570,000
81. Depreciation expense for 2019 was
a. £258,000.
b. £234,000.
c. £54,000.
d. £36,000.
Test Bank for Intermediate Accounting, IFRS Edition, 3e
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82. Equipment purchased during 2019 was
a. £510,000.
b. £300,000.
c. £210,000.
d. £90,000.
Use the following information for questions 83 through 87.
Financial statements for Kiner Company are given below:
Kiner Company
Statement of financial position
January 1, 2019
Assets Equities
Buildings and equipment €1,200,000 Share capital €920,000
Accumulated depreciation—
buildings and equipment (400,000)
Retained earnings 480,000
Patents 144,000
Accounts payable 152,000
Accounts receivable 288,000
Cash 320,000
€1,552,000
€1,552,000
Kiner Company
Statement of Cash Flows
For the Year Ended December 31, 2019
Increase (Decrease) in Cash
Cash flows from operating activities
Net income €400,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accounts receivable €(128,000)
Increase in accounts payable 64,000
Depreciation—buildings and equipment 120,000
Gain on sale of equipment (48,000)
Amortization of patents 16,000 24,000
Net cash provided by operating activities 424,000
Cash flows from investing activities
Sale of equipment 96,000
Purchase of land (200,000)
Purchase of buildings and equipment (384,000)
Net cash used by investing activities (488,000)
Cash flows from financing activities
Payment of cash dividend (120,000)
Sale of ordinary shares 320,000
Net cash provided by financing activities 200,000
Net increase in cash 136,000
Cash, January 1, 2019 320,000
Cash, December 31, 2019 €456,000
Statement of Cash Flows
23 - 15
Total assets on the statement of financial position at December 31, 2019 are €2,216,000.
Accumulated depreciation on the equipment sold was €112,000.
83. When the equipment was sold, the Buildings and Equipment account received a credit of
a. €96,000.
b. €208,000.
c. €160,000.
d. €112,000.
84. The book value of the buildings and equipment at December 31, 2019 was
a. €1,016,000.
b. €1,040,000.
c. €1,424,000.
d. €1,176,000.
85. The accounts payable at December 31, 2019 were
a. €88,000.
b. €216,000.
c. €64,000.
d. €296,000.
86. The balance in the Retained Earnings account at December 31, 2019 was
a. €360,000.
b. €880,000.
c. €760,000.
d. €1,000,000.
87. Share capital stock (plus any share premium) at December 31, 2019 was
a. €800,000.
b. €920,000.
c. €520,000.
d. €1,240,000.
Use the following information for questions 88 and 89.
The balance in retained earnings at December 31, 2018 was £720,000 and at December 31,
2019 was £582,000. Net income for 2019 was £500,000. A share dividend was declared and
distributed which increased share capital £200,000 and share premium £110,000. A cash
dividend was declared and paid.
88. The amount of the cash dividend was
a. £248,000.
b. £328,000.
c. £442,000.
d. £638,000.
89. The share dividend should be reported on the statement of cash flows (indirect method)
as
a. an outflow from financing activities of £200,000.
b. an outflow from financing activities of £310,000.
c. an outflow from investing activities of £310,000.
d. Share dividends are not shown on a statement of cash flows.
Test Bank for Intermediate Accounting, IFRS Edition, 3e
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90. The following information was taken from the 2019 financial statements of Dunlop
Corporation:
Bonds payable, January 1, 2019 € 500,000
Bonds payable, December 31, 2019 2,000,000
During 2019
• A €450,000 payment was made to retire bonds payable with a face amount of
€500,000.
• Bonds payable with a face amount of €200,000 were issued in exchange for
equipment.
In its statement of cash flows for the year ended December 31, 2019, what amount should
Dunlop report as proceeds from issuance of bonds payable?
a. €1,500,000
b. €1,750,000
c. €1,800,000
d. €2,200,000
91. Lindsay Corporation had net income for 2019 of €3,000,000. Additional information is as
follows:
Depreciation of plant assets €1,200,000
Amortization of intangibles 240,000
Increase in accounts receivable 420,000
Increase in accounts payable 540,000
Lindsay's net cash provided by operating activities for 2019 was
a. €4,560,000.
b. €4,440,000.
c. €4,320,000.
d. €1,680,000.
92. Net cash flow from operating activities for 2019 for Spencer Corporation was €300,000.
The following items are reported on the financial statements for 2019:
Cash dividends paid on ordinary shares €20,000
Depreciation and amortization 12,000
Increase in accounts receivables 24,000
Based on the information above, Spencer’s net income for 2019 was
a. €312,000.
b. €296,000.
c. €264,000.
d. €256,000.
Statement of Cash Flows
23 - 17
93. During 2019, Orton Company earned net income of €384,000 which included depreciation
expense of €78,000. In addition, the company experienced the following changes in the
account balances listed below:
Increases Decreases
Accounts payable €45,000 Accounts receivable €12,000
Inventory 36,000 Accrued liabilities 24,000
Prepaid insurance 33,000
Based upon this information what amount will be shown for net cash provided by
operating activities for 2019?
a. €492,000
b. €465,000
c. €285,000
d. €267,000
94. Minear Company reported net income of €340,000 for the year ended 12/31/19. Included
in the computation of net income were: depreciation expense, €60,000; amortization of a
patent, €32,000; income from an investment in ordinary shares of Brett Inc., accounted for
under the equity method, €48,000; and amortization of a bond discount, €12,000. Minear
also paid an €80,000 dividend during the year. The net cash provided by operating
activities would be reported at:
a. €396,000.
b. €316,000.
c. €284,000.
d. €204,000.
95. In preparing Titan Inc.’s statement of cash flows for the year ended December 31, 2019,
the following amounts were available:
Collect note receivable £320,000
Issue bonds payable 406,000
Purchase treasury shares 210,000
What amount should be reported on Titan, Inc.’s statement of cash flows for investing
activities?
a. £320,000
b. £110,000
c. £726,000
d. £110,000
96. In preparing Titan Inc.’s statement of cash flows for the year ended December 31, 2019,
the following amounts were available:
Collect note receivable £320,000
Issue bonds payable 406,000
Purchase treasury shares 210,000
What amount should be reported on Titan, Inc’s statement of cash flows for financing
activities?
a. £ 86,000
b. £726,000
c. £196,000
d. £110,000
Test Bank for Intermediate Accounting, IFRS Edition, 3e
23 - 18
97. Jarvis, Inc. reported net income of €34,000 for the year ended December 31, 2019
Included in net income were depreciation expense of €8,400 and a gain on sale of
equipment of €1,700. Each of the following accounts increased during 2019:
Accounts receivable €2,200
Inventory €4,500
Prepaid rent €6,800
Non-trading investment €1,000
Accounts payable €5,000
What is the amount of cash provided by operating activities for Jarvis, Inc. for the year
ended December 31, 2019?
a. €31,200
b. €33,900
c. €22,200
d. €32,200
98. Jarvis, Inc. reported net income of €34,000 for the year ended December 31, 2019
Included in net income were depreciation expense of €8,400 and a gain on sale of
equipment of €1,700. The equipment had an historical cost of €40,000 and accumulated
depreciation of €24,000. Each of the following accounts increased during 2019:
Patents €4,500
Prepaid rent €6,800
Non-trading investment €1,000
Bonds payable €5,000
What is the amount of cash provided by or used by investing activities for Jarvis, Inc. for
the year ended December 31, 2019?
a. (€3,800)
b. €5,400
c. €12,200
d. €17,200
99. Jarvis, Inc. reported net income of €34,000 for the year ended December 31, 2019.
Included in net income was a gain on early extinguishment of debt of €60,000 related to
bonds payable with a book value of €1,200,000. Each of the following accounts increased
during 2019: Notes receivable €45,000
Deferred tax liability €10,000
Treasury shares €90,000
What is the amount of cash used by financing activities for Jarvis, Inc. for the year ended
December 31, 2019?
a. €1,230,000
b. €1,240,000
c. € 160,000
d. € 195,000
Statement of Cash Flows
23 - 19
100. During 2019, Greta Company earned net income of €192,000 which included depreciation
expense of €39,000. In addition, the Company experienced the following changes in the
account balances listed below:
Decreases Increases
Accounts receivable ..... € 6,000 Accounts payable…... €22,500
Prepaid expenses .......... 16,500 Inventory……………. ..18,000
Accrued liabilities ........... 12,000
Based upon this information what amount will be shown for net cash provided by
operating activities for 2019.
a. €246,000.
b. €232,500.
c. €142,500.
d. €133,500.
101. Cashman Company reported net income of €255,000 for the year ended 12/31/19.
Included in the computation of net income were: depreciation expense, €45,000;
amortization of a patent, €24,000; income from an investment in ordinary shares of Linda
Inc., accounted for under the equity method, €36,000; and amortization of a bond
premium, €9,000. Cashman also paid a €60,000 dividend during the year. The net cash
provided by operating activities would be reported at:
a. €279,000.
b. €231,000.
c. €219,000.
d. €171,000.
102. Net cash flow from operating activities for 2019 for Graham Corporation was £300,000.
The following items are reported on the financial statements for 2019:
Depreciation and amortization £ 20,000
Cash dividends paid on ordinary shares 12,000
Increase in accounts receivable 24,000
Based only on the information above, Graham’s net income for 2019 was:
a. £256,000.
b. £264,000.
c. £296,000.
d. £304,000.
Use the following information for questions 103 and 104.
Napier Co. provided the following information on selected transactions during 2019:
Purchase of land by issuing bonds €250,000
Proceeds from issuing bonds 500,000
Purchases of inventory 950,000
Purchases of treasury shares 150,000
Loans made to affiliated corporations 350,000
Dividends paid to preference shareholders 100,000
Proceeds from issuing preference share 400,000
Proceeds from sale of equipment 50,000
Test Bank for Intermediate Accounting, IFRS Edition, 3e
23 - 20
103. The net cash provided (used) by investing activities during 2019 is
a. €50,000.
b. €(300,000).
c. €(550,000).
d. €(1,250,000).
104. The net cash provided by financing activities during 2019 is
a. €550,000.
b. €650,000.
c. €800,000.
d. €900,000.
Use the following information for questions 105 through 107.
The balance sheet data of Kohler Company at the end of 2019 and 2018 follow:
2019 2018
Buildings and equipment €180,000 €150,000
Accumulated depreciation—buildings and equipment (36,000) (16,000)
Land 180,000 80,000
Cash 50,000 70,000
Prepaid expenses 20,000 50,000
Inventory 140,000 90,000
Accounts receivable (net) 120,000 90,000
Totals €654,000 €514,000
Share capital-ordinary, €10 par €418,000 €318,000
Retained earnings (deficit) 16,000 (30,000)
Notes payable—bank, long-term 80,000
Mortgage payable 60,000
Accrued expenses 24,000 36,000
Accounts payable 136,000 110,000
€654,000 €514,000
Land was acquired for €100,000 in exchange for ordinary shares, par $100,000, during the year;
all equipment purchased was for cash. Equipment costing €10,000 was sold for €4,000; book
value of the equipment was €8,000 and the loss was reported in net income. Cash dividends of
€20,000 were charged to retained earnings and paid during the year; the transfer of net income to
retained earnings was the only other entry in the Retained Earnings account. In the statement of
cash flows for the year ended December 31, 2019, for Naley Company:
105. The net cash provided by operating activities was
a. €52,000.
b. €66,000.
c. €56,000.
d. €48,000.
106. The net cash provided (used) by investing activities was
a. €26,000.
b. €(40,000).
c. €(136,000).
d. €(36,000).
Statement of Cash Flows
23 - 21
107. The net cash provided (used) by financing activities was
a. € -0-.
b. €(20,000).
c. €(40,000).
d. €60,000.
108. The following information on selected cash transactions for 2019 has been provided by
Mancuso Company:
Proceeds from sale of land €160,000
Proceeds from long-term borrowings 400,000
Purchases of plant assets 144,000
Purchases of inventories 680,000
Proceeds from sale of Mancuso ordinary shares 240,000
What is the cash provided (used) by investing activities for the year ended December 31,
2019, as a result of the above information?
a. €16,000
b. €256,000.
c. €160,000.
d. €800,000.
109. Selected information from Dinkel Company's 2019 accounting records is as follows:
Proceeds from issuance of ordinary shares £ 400,000
Proceeds from issuance of bonds 1,200,000
Cash dividends on ordinary shares paid 160,000
Cash dividends on preference shares paid 60,000
Purchase of treasury shares 120,000
Sale of ordinary shares to officers and employees not included above 100,000
Dinkel's statement of cash flows for the year ended December 31, 2019, would show net
cash provided (used) by financing activities of
a. £60,000.
b. £(220,000).
c. £160,000.
d. £1,360,000.
110. The board of directors of Akiko Corp. declared cash dividends of ¥265,000 during the
current year. If dividends payable was ¥83,000 at the beginning of the year and ¥77,000
at the end of the year, how much cash was paid in dividends during the year?
a. ¥425,000
b. ¥271,000
c. ¥259,000
d. ¥265,000
111. The net income for Akira Industries for 2019 was ¥302,000. During 2019, depreciation on
plant assets was ¥114,000, amortization of patent was ¥50,000, and the company
incurred a loss on sale of plant assets of ¥27,000. What is the net cash flow from
operating activities?
a. ¥111,000
b. ¥493,000
c. ¥339,000
d. ¥439,000
Test Bank for Intermediate Accounting, IFRS Edition, 3e
23 - 22
112. Kensington Industries reported net income of £50,000 in 2019. Depreciation expense was
£19,000.
The following working capital accounts changed:
Accounting receivable £11,000 increase
Non-trading equity investment 16,000 increase
Inventory 7,300 increase
Non-trade note payable 15,000 increase
Accounts payable 12,200 increase
If Kensington uses IFRS reporting and the indirect method, what amount is their
adjustments to reconcile net income to net cash provided by or (used in) operating
activities?
a. £3,100
b. £49.500
c. £12,900
d. £10,500
113. In 2019, Mayfair Ltd. reported a net loss of £70,000. Mayfair’s only net income
adjustments were depreciation expense £81,000, and increase in accounts receivable
$8,100. What is Mayfair’s net cash provided (used) by operating activities?
a. (£2,900)
b. £19,100
c. £142.900
d. £2,900
114. Stonehaven Co. reported sales on an accrual basis of £109,000. If accounts receivable
increased £31,000, and the allowance for doubtful accounts increased £10,000 after a
write-off of £3,000, what amount of cash sales does Stonehaven have?
a. £75,000
b. £65,000
c. £85,000.
d. £91,000.
115. At January 1, 2019, Buckingham Inc. had accounts receivable €71,500. At December 31,
2019, accounts receivable is €53,800. Sales for 2019 total €412,000. What are
Buckingham’s 2019 cash receipts from customers?
a. €394,300
b. €465,800
c. €429,700
d. €412,000
116. Wentworth Ltd. had January 1 and December 31 balances as follows:
1/1/19
12/31/19
Inventory
£93,000
£103,000
Accounts payable
62,000
76,000
For 2019, cost of goods sold was £519,000. What are Wentworth’s 2019 cash payments
to suppliers?
a. £543,000
b. £523,000
c. £515,000
d. £519,000
Statement of Cash Flows
23 - 23
117. Donnegan Company reported operating expenses of €285,000 for 2019. The following
data were extracted from the company’s financial records:
12/31/18 12/31/19
Prepaid expenses € 60,000 €69,000
Accrued expenses 210,000 255,000
On a statement of cash flows for 2019, using the direct method, cash payments for
operating expenses should be:
a. €339,000.
b. €321,000.
c. €249,000.
d. €231,000.
118. The following information was taken from the 2019 financial statements of Jenny Gardner
Corporation:
Inventory, January 1, 2019 € 90,000
Inventory, December 31, 2019 120,000
Accounts payable, January 1, 2019 75,000
Accounts payable, December 31, 2019 120,000
Sales 600,000
Cost of goods sold 450,000
If the direct method is used in the 2019 statement of cash flows, what amount should
Jenny Gardner report as cash payments to suppliers?
a. €435,000
b. €465,000
c. €495,000
d. €525,000
119. Alex Company prepares its statement of cash flows using the direct method for operating
activities. For the year ended December 31, 2019, Alex 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 good sold 975,000
What is the amount of cash collections from customers reported by Alex Company for the
year ended December 31, 2019?
a. €2,040,000
b. €1,910,000
c. €2,650,000
d. €1,430,000
Test Bank for Intermediate Accounting, IFRS Edition, 3e
23 - 24
120. Alex Company prepares its statement of cash flows using the direct method for operating
activities. For the year ended December 31, 2019, Alex 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
What is the amount of cash payments to suppliers reported by Alex Company for the year
ended December 31, 2019?
a. € 951,000
b. € 999,000
c. €1,095,000
d. € 855,000
Questions 121 through 124 are based on the data shown below related to the statement of cash
flows for Putnam, Inc.: Putnam, Inc.
Comparative Statement of Financial Position
December 31,
2019 2018
Assets:
Plant Assets:
Property, Plant & Equipment €2,190,000 €1,440,000
Accumulated Depreciation (450,000) (270,000)
Total Plant Assets 1,740,000 1,170,000
Long-Term Investments 225,000
Current Assets:
Prepaid Expenses 351,000 315,000
Inventory 1,950,000 1, 260,000
Accounts Receivable (net) 1,560,000 1,080,000
Cash 690,000 540,000
Total Current Assets 4,451,000 3,195,000
Total Assets €6,516,000 €4,365,000
Equities:
Equity:
Share Capital-Ordinary €3,000,000 €2,400,000
Retained Earnings 906,000 588,000
Long-Term Notes Payable 825,000 —
Current Liabilities:
Accounts Payable 1,275,000 1,095,000
Accrued Expenses 309,000 282,000
Dividends Payable 201,000
Total Current Liabilities 1,785,000 1,377,000
Total Equities €6,516,000 €4,365,000
Statement of Cash Flows
23 - 25
Putnam, Inc.
Comparative Income Statements
December 31,
2019 2018
Net Credit Sales €7,020,000 €3,753,000
Cost of Goods Sold 3,915,000 1,881,000
Gross Profit 3,105,000 1,872,000
Expenses (including Income Tax) 2,586,000 1,374,000
Net Income € 519,000 € 498,000
Additional Information:
a. Accounts receivable and accounts payable relate to merchandise held for sale in the
normal course of business. The allowance for bad debts was the same at the end of
2019 and 2018, and no receivables were charged against the allowance. Accounts
payable are recorded net of any discount and are always paid within the discount
period.
b. The proceeds from the note payable were used to finance the acquisition of property,
plant, and equipment. Ordinary shares were sold to provide additional working capital.
121. What amount of cash was collected from 2019 accounts receivable?
a. €7,500,000.
b. €7,020,000.
c. €6,540,000.
d. €3,270,000.
122. What amount of cash was paid on accounts payable to suppliers during 2019?
a. €4,605,000.
b. €4,425,000.
c. €4,095,000.
d. €3,735,000.
123. The amount to be shown on the cash flow statement as net cash provided by investing
activities would total what amount?
a. €225,000.
b. €750,000.
c. €795,000.
d. €975,000.
124. The amount to be shown on the cash flow statement as net cash provided by financing
activities would total what amount?
a. €1,425,000.
b. €825,000.
c. €600,000.
d. €408,000.
Test Bank for Intermediate Accounting, IFRS Edition, 3e
23 - 26
Use the following information for questions 125 and 126.
Fleming Company provided the following information on selected transactions during 2019:
Dividends paid to preference shareholders £ 150,000
Loans made to affiliated corporations 750,000
Proceeds from issuing bonds 900,000
Proceeds from issuing preference shares 1,050,000
Proceeds from sale of equipment 450,000
Purchases of inventories 1,200,000
Purchase of land by issuing bonds 300,000
Purchases of treasury shares 600,000
125. The net cash provided (used) by investing activities during 2019 is
a. £(600,000).
b. £(300,000).
c. £150,000.
d. £450,000.
126. The net cash provided (used) by financing activities during 2019 is
a. £(1,650,000).
b. £450,000.
c. £750,000.
d. £1,200,000.
127. The net cash provided by operating activities in Sosa Company's statement of cash flows
for 2019 was €115,000. For 2019, depreciation on plant assets was €45,000, amortization
of patent was €8,000, and cash dividends paid on ordinary shares was €54,000. Based
only on the information given above, Sosa’s net income for 2019 was
a. €115,000.
b. €62,000.
c. €8,000.
d. €116,000.
128. During 2019, Oldham Corporation, which uses the allowance method of accounting for
doubtful accounts, recorded a provision for bad debt expense of €25,000 and in addition it
wrote off, as uncollectible, accounts receivable of €10,000. As a result of these
transactions, net cash flows from operating activities would be calculated (indirect
method) by adjusting net income with a
a. €25,000 increase.
b. €10,000 increase.
c. €15,000 increase.
d. €15,000 decrease.
Statement of Cash Flows
23 - 27
129. Zook Incorporated, had net income for 2019 of €5,000,000. Additional information is as
follows:
Amortization of patents € 45,000
Depreciation on plant assets 1,650,000
Long-term debt:
Bond premium amortization 65,000
Interest paid 900,000
Provision for doubtful accounts:
Current receivables 80,000
Long-term nontrade receivables 30,000
What should be the net cash provided by operating activities in the statement of cash
flows for the year ended December 31, 2019, based solely on the above information?
a. €6,820,000.
b. €6,870,000.
c. €6,740,000.
d. €6,840,000.
130. The net income for the year ended December 31, 2019, for Oliva Company was
€1,200,000. Additional information is as follows:
Depreciation on plant assets €600,000
Amortization of leasehold improvements 340,000
Provision for doubtful accounts on short-term receivables 120,000
Provision for doubtful accounts on long-term receivables 100,000
Interest paid on short-term borrowings 80,000
Interest paid on long-term borrowings 60,000
Based solely on the information given above, what should be the net cash provided by
operating activities in the statement of cash flows for the year ended December 31, 2019?
a. €2,260,000.
b. €2,360,000.
c. €2,340,000.
d. €2,500,000.
Multiple Choice Answers—Computational
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Test Bank for Intermediate Accounting, IFRS Edition, 3e
23 - 28
MULTIPLE CHOICE—CPA Adapted
Use the following information for questions 131 through 133.
Jamison Corp.'s statement of financial position accounts as of December 31, 2019 and 2018 and
information relating to 2019 activities are presented below.
December 31,
2019 2018
Assets
Plant assets €3,400,000 €2,000,000
Accumulated depreciation (900,000) (900,000)
Patent 180,000 200,000
Long-term investments 400,000 600,000
Inventory 1,380,000 1,200,000
Accounts receivable (net) 1,020,000 1,020,000
Short-term investments 600,000 —
Cash 440,000 200,000
Total assets €6,520,000 €4,320,000
Equity and Liabilities
Share capital-ordinary, €10 par €1,600,000 €1,400,000
Share premium-ordinary 800,000 500,000
Retained earnings 1,880,000 980,000
Notes payable (nontrade) 580,000 —
Accounts payable and accrued liabilities 1,660,000 1,440,000
Total equity and liabilities €6,520,000 €4,320,000
Information relating to 2019 activities:
• Net income for 2019 was €1,500,000.
• Cash dividends of €600,000 were declared and paid in 2019.
• Equipment costing €1,000,000 and having a carrying amount of €320,000 was sold in 2019
for €360,000.
• A long-term investment was sold in 2019 for €320,000. There were no other transactions
affecting long-term investments in 2019.
• 20,000 ordinary shares were issued in 2019 for €25 a share.
• Short-term investments consist of treasury bills maturing on 6/30/20.
131. Net cash provided by Jamison’s 2019 operating activities was
a. €1,500,000.
b. €2,120,000.
c. €2,080,000.
d. €2,160,000.
132. Net cash used in Jamison’s 2019 investing activities was
a. €2,320,000.
b. €1,820,000.
c. €1,680,000.
d. €1,720,000.
Statement of Cash Flows
23 - 29
133. Net cash provided by Jamison’s 2019 financing activities was
a. €480,000.
b. €520,000.
c. €1,080,000.
d. €1,680,000.
134. Foxx Corp.'s comparative statement of financial position at December 31, 2019 and 2018
reported accumulated depreciation balances of €800,000 and €600,000, respectively.
Property with a cost of €50,000 and a carrying amount of €38,000 was the only property
sold in 2019. Depreciation charged to operations in 2019 was
a. €188,000.
b. €200,000.
c. €212,000.
d. €224,000.
135. Nagel Co.'s prepaid insurance was £90,000 at December 31, 2019 and £45,000 at
December 31, 2018. Insurance expense was £36,000 for 2019 and £27,000 for 2018.
What amount of cash disbursements for insurance would be reported in Nagel's 2016 net
cash provided by operating activities presented on a direct basis?
a. £99,000.
b. £81,000.
c. £54,000.
d. £36,000.
Use the following information for questions 136 and 137.
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.
136. In a statement of cash flows, what amount is included in investing activities for the above
transaction?
a. Cash payment
b. Acquisition price
c. Zero
d. Mortgage amount
137. In a statement of cash flows, what amount is included in financing activities for the above
transaction?
a. Cash payment
b. Acquisition price
c. Zero
d. Mortgage amount
Use the following information for questions 138 and 139.
Smiley Corp.'s transactions for the year ended December 31, 2019 included the following:
• Purchased real estate for €550,000 cash which was borrowed from a bank.
• Sold non-trading investments for €500,000.
• Paid dividends of €600,000.
• Issued 500 ordinary shares for €250,000.
• Purchased machinery and equipment for €125,000 cash.
Test Bank for Intermediate Accounting, IFRS Edition, 3e
23 - 30
• Paid €450,000 toward a bank loan.
• Reduced accounts receivable by €100,000.
• Increased accounts payable €200,000.
138. Smiley's net cash used in investing activities for 2019 was
a. €675,000.
b. €375,000.
c. €175,000.
d. €50,000.
139. Smiley's net cash used in financing activities for 2019 was
a. €50,000.
b. €250,000.
c. €450,000.
d. €500,000.
Use the following information for questions 140 and 141.
Peavy Corp.'s transactions for the year ended December 31, 2019 included the following:
• Acquired 50% of Gant Corp.'s ordinary shares for €180,000 cash which was borrowed from a
bank.
• Issued 5,000 of its preference shares for land having a fair value of €320,000.
• Issued 500 of its 11% debenture bonds, due 2019, for €392,000 cash.
• Purchased a patent for €220,000 cash.
• Paid €120,000 toward a bank loan.
• Sold non-trading investments for €796,000.
• Had a net increase in returnable customer deposits (long-term) of €88,000.
140. Peavy’s net cash provided by investing activities for 2019 was
a. €296,000.
b. €396,000.
c. €476,000.
d. €616,000.
141. Peavy’s net cash provided by financing activities for 2019 was
a. €452,000.
b. €540,000.
c. €572,000.
d. €660,000.
Multiple Choice Answers—CPA Adapted
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Statement of Cash Flows
23 - 31
DERIVATIONS — Computational
No. Answer Derivation
Test Bank for Intermediate Accounting, IFRS Edition, 3e
23 - 32
No. Answer Derivation
Statement of Cash Flows
23 - 33
Test Bank for Intermediate Accounting, IFRS Edition, 3e
23 - 34
DERIVATIONS — Computational (cont.)
No. Answer Derivation
Statement of Cash Flows
23 - 35
DERIVATIONS — CPA Adapted
No. Answer Derivation
EXERCISES
Ex. 23-142—Direct and indirect methods.
Compare the direct method and the indirect method by explaining each method.
Solution 23-142
Test Bank for Intermediate Accounting, IFRS Edition, 3e
23 - 36
Ex. 23-143—Effects of transactions on statement of cash flows.
Indicate for each of the following what should be disclosed on a statement of cash flows (indirect
method). If not disclosed, write "Not shown." There may be more than one answer for some
items. For an item that is added to net income, write "Add," and for an item that is deducted from
net income, write "Deduct." Show financing and investing outflows in parentheses. For example,
an answer might be: Deduct €4,700 or Investing (€31,000). If the item is a noncash transaction
that should be disclosed separately, write "Noncash."
(a) The deferred tax liability increased €10,000.
(b) The balance in Investment in Hoyt Co. increased €12,000 as a result of using the equity
method.
(c) Issuance of a share dividend increased share capital €40,000 and share premium €16,000.
(d) Amortization of bond discount, €1,600.
(e) Machinery that cost €100,000 and had accumulated depreciation of €48,000 was sold for
€55,000.
(f) Issued 6,000 ordinary shares (€10 par) with a fair value of €15 per share for machinery.
(Show the amount, too.)
(g) Amortization of patents, €3,000.
(h) Cash dividends paid, €60,000.
Solution 23-143
Ex. 23-144—Effects of transactions on statement of cash flows.
Indicate for each of the following what should be disclosed on a statement of cash flows (SCF)
(indirect method). If not disclosed, write "Not shown." If an item is a non-cash transaction that
should be shown separately, write "noncash." If an item is added to net income, write "Add," and
if an item is deducted from net income, write "Deduct." Show financing and investing outflows in
parentheses. For example, an answer might be: Deduct €4,700 or Investing (€31,000). There is
more than one answer for some items.
(a) Issued 3,000 preference shares, €50 par, with a fair value of €110 per share for land. (Show
the amount, too.)
(b) Amortization of bond premium, €1,100.
Statement of Cash Flows
23 - 37
Ex. 23-144 (cont.)
(c) The balance in Retained Earnings was €875,000 on December 31, 2018 and €1,310,000 on
December 31, 2019. Net income was €1,170,000. A share dividend was declared and
distributed which increased share capital €325,000 and share premium €180,000. (Show
calculation of the cash dividend and indicate how it and the share dividend would be shown
on the SCF.)
(d) Equipment, which cost €115,000 and had accumulated depreciation of €53,000, was sold
for €67,000.
(e) The deferred tax liability increased €18,000.
Solution 23-144
Ex. 23-145—Calculations for statement of cash flows.
During 2019 equipment was sold for €75,000. This equipment cost €120,000 and had a book
value of €70,000. Accumulated depreciation for equipment was €325,000 at 12/31/18 and
€310,000 at 12/31/19.
Instructions
What three items should be shown on a statement of cash flows (indirect method) from this
information? Show your calculations.
Test Bank for Intermediate Accounting, IFRS Edition, 3e
23 - 38
Solution 23-145
Ex. 23-146—Calculations for statement of cash flows.
Milner Co. sold a machine that cost €74,000 and had a book value of €44,000 for €50,000. Data
from Milner's comparative statements of financial position are:
12/31/19 12/31/18
Machinery €800,000 €690,000
Accumulated depreciation 190,000 136,000
Instructions
What four items should be shown on a statement of cash flows (indirect method) from this
information? Show your calculations.
Solution 23-146
Statement of Cash Flows
23 - 39
Ex. 23-147—Cash flows from operating activities (indirect and direct methods).
Presented below is the income statement of Cowan, Inc.:
Sales £380,000
Cost of goods sold 225,000
Gross profit £155,000
Operating expenses 85,000
Income before income taxes 70,000
Income taxes 28,000
Net income £ 42,000
In addition, the following information related to net changes in working capital is presented:
Debit Credit
Cash £12,000
Accounts receivable 15,000
Inventories £19,400
Salaries payable (operating expenses) 8,000
Accounts payable 12,000
Income tax payable 3,000
The company also indicates that depreciation expense for the year was £16,700 and that the
deferred tax liability account increased £2,600.
Instructions
Prepare a schedule computing the net cash flow from operating activities that would be shown on
a statement of cash flows:
(a) using the indirect method.
(b) using the direct method.
Solution 23-147
Test Bank for Intermediate Accounting, IFRS Edition, 3e
23 - 40
Solution 23-147 (cont.)
Ex. 23-148—Statement of cash flows (indirect method).
The following information is taken from French Corporation's financial statements:
December 31
2019 2018
Cash € 90,000 € 27,000
Accounts receivable 92,000 80,000
Allowance for doubtful accounts (4,500) (3,100)
Inventory 155,000 175,000
Prepaid expenses 7,500 6,800
Land 90,000 60,000
Buildings 287,000 244,000
Accumulated depreciation (32,000) (13,000)
Patents 20,000 35,000
€705,000 €611,700
Accounts payable € 90,000 € 84,000
Accrued liabilities 54,000 63,000
Bonds payable 125,000 60,000
Share capital-ordinary 100,000 100,000
Retained earnings—appropriated 80,000 10,000
Retained earnings—unappropriated 271,000 302,700
Treasury shares, at cost (15,000) (8,000)
€705,000 €611,700
For 2019 Year
Net income €58,300
Depreciation expense 19,000
Amortization of patents 5,000
Cash dividends declared and paid 20,000
Gain or loss on sale of patents none
Instructions
Prepare a statement of cash flows for French Corporation for the year 2019. (Use the indirect
method.)
Statement of Cash Flows
23 - 41
Solution 23-148
Test Bank for Intermediate Accounting, IFRS Edition, 3e
23 - 42
Ex. 23-149—Preparation of statement of cash flows (format provided).
The statements of financial position for Kinder Company showed the following information.
Additional information concerning transactions and events during 2019 are presented below.
Kinder Company
Statements of Financial Position
December 31
2019 2018
Property, plant & equipment €236,500 €150,000
Accumulated depreciation (37,700) (25,000)
Long-term investments 0 15,000
Inventory 35,000 42,000
Accounts receivable (net) 43,300 20,300
Cash 30,900 10,200
€308,000 €212,500
Share capital-ordinary €130,000 € 90,000
Retained earnings 70,000 29,000
Long-term notes payable 70,000 50,000
Accounts payable 21,000 17,000
Accrued liabilities 17,000 26,500
€308,000 €212,500
Additional data:
1. Net income for the year 2019, €76,000.
2. Depreciation on plant assets for the year, €12,700.
3. Sold the long-term investments for €28,000.
4. Paid dividends of €35,000.
5. Purchased machinery costing €26,500, paid cash.
6. Purchased machinery and gave a €60,000 long-term note payable.
7. Paid a €40,000 long-term note payable by issuing ordinary shares.
Statement of Cash Flows
23 - 43
Instructions
Using the format provided below, prepare a statement of cash flows (using the indirect method)
for 2016 for Kinder Company.
Kinder Company
Statement of Cash Flows
For the Year Ended December 31, 2019
Increase (Decrease) in Cash
Cash flows from operating activities
Net income €__________
Adjustments to reconcile net income to net cash
provided by operating activities:
__________________________________ €__________
__________________________________ __________
__________________________________ __________
__________________________________ __________
__________________________________ __________
__________________________________ __________
__________________________________ __________ __________
Net cash provided (used) by operating activities __________
Cash flows from investing activities
___________________________________ __________
___________________________________ __________
___________________________________ __________
Net cash provided (used) by investing activities __________
Cash flows from financing activities
___________________________________ __________
___________________________________ __________
___________________________________ __________
Net cash provided (used) by financing activities __________
Net increase (decrease) in cash €
Cash, January 1, 2019
Cash, December 31, 2019 €
Test Bank for Intermediate Accounting, IFRS Edition, 3e
23 - 44
Statement of Cash Flows
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Ex. 23-150—Classification of cash flows.
Note that X in the following statement of cash flows identifies a dollar amount and the letters (A)
through (F) identify specific items which appear in the major sections of the statement prepared
using the indirect method. Statement of Cash Flows
Cash flows from operating activities
Net income X
Adjustments to reconcile net income to net cash
provided by operating activities:
Add +X (A)
Deduct –X (B)
Net cash provided by operating activities X
Cash flows from investing activities
Inflows +X (C)
Outflows –X (D)
Net cash provided (used) by investing activities X
Cash flows from financing activities
Inflows +X (E)
Outflows –X (F)
Net cash provided (used) by financing activities X
Net increase (decrease) in cash X
Instructions
For each of the following items, indicate by letter in the blank spaces below, the section or
sections where the effect would be reported. Use the code (A through F) from above. If the item is
not required to be reported on the statement of cash flows, write the word "none" in the blank.
Assume that accepted accounting standards have been followed in determining net income and
that there are no short-term securities which are considered cash equivalents.
____ 1. Issued preference shares in exchange for equipment.
____ 2. Sales discounts lapsed and not taken by customers. (Sales recorded at net
originally.)
____ 3. Accrued estimated income taxes for the period. These taxes will be paid next year.
____ 4. Amortization of premium on bonds payable.
____ 5. Premium amortized on investment in bonds.
____ 6. The book value of trading investments was reduced to fair value.
____ 7. Purchase of available-for-sale investments.
____ 8. Declaration of share dividends (not yet issued).
____ 9. Decrease in Retained Earnings Appropriated for Self-insurance.
____ 10. Bad debts (under allowance method) estimated and recorded for the period
(receivables classified as current).
Test Bank for Intermediate Accounting, IFRS Edition, 3e
23 - 46
Ex. 23-150 (cont.)
____ 11. Gain on disposal of old machinery.
____ 12. Payment of cash dividends (previously declared in a prior period).
____ 13. Trading investments are sold at a loss.
____ 14. Two-year notes issued at discount for a patent.
____ 15. Amortization of discount on notes receivable (long-term).
Solution 23-150
Ex. 23-151—Classification of cash flows and transactions.
Give:
(a) Three distinct examples of investing activities.
(b) Three distinct examples of financing activities.
(c) Three distinct examples of significant noncash transactions.
(d) Two examples of transactions not shown on a statement of cash flows.
Solution 23-151
Statement of Cash Flows
23 - 47
Ex. 23-152—Effects of transactions on statement of cash flows.
Any given transaction may affect a statement of cash flows (using the indirect method) in one or
more of the following ways:
Cash flows from operating activities
a. Net income will be increased or adjusted upward.
b. Net income will be decreased or adjusted downward.
Cash flows from investing activities
c. Increase as a result of cash inflows.
d. Decrease as a result of cash outflows.
Cash flows from financing activities
e. Increase as a result of cash inflows.
f. Decrease as a result of cash outflows.
The statement of cash flows is not affected
g. Not required to be reported in the body of the statement.
Instructions
For each transaction listed below, list the letter or letters from above that describe(s) the effect
of the transaction on a statement of cash flows for the year ending December 31, 2019. (Ignore
any income tax effects.)
____ 1. Preference shares with a carrying value of £44,000 was redeemed for £50,000 on
January 1, 2019.
____ 2. Uncollectible accounts receivable in the amount of £3,000 were written off against the
allowance for doubtful accounts balance of £12,200 on December 31, 2019.
____ 3. Machinery which originally cost £3,000 and has a book value of £1,800 is sold for
£1,400 on December 31, 2019.
____ 4. Land is acquired through the issuance of bonds payable on July 1, 2019.
____ 5. 1,000 ordinary shares, stated value £10 per share, are issued for £25 per share in
2019.
____ 6. An appropriation of retained earnings for treasury shares in the amount of £35,000 is
established in 2019.
____ 7. A cash dividend of £8,000 is paid on December 31, 2019.
____ 8. The portfolio of long-term investments (non-trading) is at an aggregate fair value
higher than aggregate cost at December 31, 2019.
Solution 23-152
Test Bank for Intermediate Accounting, IFRS Edition, 3e
23 - 48
PROBLEMS
Pr. 23-153—Statement of cash flows (indirect method).
The net changes in the statement of financial position accounts of Keating Corporation for the
year 2019 are shown below.
Account Debit Credit
Cash € 82,000
Short-term investments €121,000
Accounts receivable 83,200
Allowance for doubtful accounts 13,300
Inventory 74,200
Prepaid expenses 17,800
Investment in subsidiary (equity method) 20,000
Plant and equipment 210,000
Accumulated depreciation 130,000
Accounts payable 80,700
Accrued liabilities 21,500
Deferred tax liability 15,500
8% serial bonds 80,000
Share capital-ordinary, $10 par 90,000
Share premium-ordinary 150,000
Retained earnings—Appropriation for bonded indebtedness 60,000
Retained earnings—Unappropriated 38,000
€643,600 €643,600
An analysis of the Retained Earnings—Unappropriated account follows:
Retained earnings unappropriated, December 31, 2018 €1,300,000
Add: Net income 327,000
Transfer from appropriation for bonded indebtedness 60,000
Total €1,687,000
Deduct: Cash dividends €185,000
Share dividend 240,000 425,000
Retained earnings unappropriated, December 31, 2019 €1,262,000
1. On January 2, 2019 short-term investments (classified as non-trading) costing €121,000 were
sold for €155,000.
2. The company paid a cash dividend on February 1, 2019.
3. Accounts receivable of €16,200 and €19,400 were considered uncollectible and written off in
2019 and 2018, respectively.
4. Major repairs of €33,000 to the equipment were debited to the Accumulated Depreciation
account during the year. No assets were retired during 2019.
5. The wholly owned subsidiary reported a net loss for the year of €20,000. The loss was
recorded by the parent.
6. At January 1, 2019, the cash balance was €166,000.
Instructions
Prepare a statement of cash flows (indirect method) for the year ended December 31, 2019.
Keating Corporation has no securities which are classified as cash equivalents.
Statement of Cash Flows
23 - 49
Solution 23-153
Test Bank for Intermediate Accounting, IFRS Edition, 3e
23 - 50
Pr. 23-154—Statement of cash flows (direct and indirect methods).
Hartman, Inc. has prepared the following comparative statement of financial position for 2018 and
2019:
2019 2018
Plant assets €1,260,000 €1,050,000
Accumulated depreciation (450,000) (375,000)
Patent 153,000 174,000
Prepaid expenses 18,000 27,000
Inventory 150,000 180,000
Receivables 159,000 117,000
Cash 297,000 153,000
€1,587,000 €1,326,000
Share capital-preference € 129,000 € 66,000
Share premium-preference — 450,000
Share capital-ordinary 153,000 168,000
Retained earnings 60,000 42,000
Mortgage payable 525,000 —
Accounts payable 120,000 —
Accrued liabilities 600,000 600,000
€1,587,000 €1,326,000
1. The Accumulated Depreciation account has been credited only for the depreciation expense
for the period.
2. The Retained Earnings account has been charged for dividends of €138,000 and credited for
the net income for the year.
The income statement for 2019 is as follows:
Sales €1,980,000
Cost of sales 1,089,000
Gross profit 891,000
Operating expenses 690,000
Net income € 201,000
Instructions
(a) From the information above, prepare a statement of cash flows (indirect method) for
Hartman, Inc. for the year ended December 31, 2019.
(b) From the information above, prepare a schedule of cash provided by operating activities
using the direct method.
Statement of Cash Flows
23 - 51
Solution 23-154
Test Bank for Intermediate Accounting, IFRS Edition, 3e
23 - 52
Pr. 23-155—A complex statement of cash flows (indirect method).
The net changes in the statement of financial position accounts of Eusey, Inc. for the year 2019
are shown below:
Account Debit Credit
Cash € 125,600
Accounts receivable € 64,000
Allowance for doubtful accounts 14,000
Inventory 217,200
Prepaid expenses 20,000
Long-term investments 144,000
Land 300,000
Buildings 600,000
Machinery 100,000
Office equipment 28,000
Accumulated depreciation:
Buildings 24,000
Machinery 20,000
Office equipment 12,000
Accounts payable 183,200
Accrued liabilities€ 72,000
Dividends payable 128,000
Bonds payable 832,000
Share capital-Preference (€50 par) 60,000
Share capital-ordinary (€10 par) 156,000
Share premium-ordinary 223,200
Retained earnings 87,200
€1,705,200 €1,705,200
Additional information:
1. Income Statement Data for Year Ended December 31, 2019
Income before income taxes €200,000
Income taxes 60,000
Net income €140,000
2. Cash dividends of €128,000 were declared December 15, 2019, payable January 15, 2020.
A 5% share dividend was issued March 31, 2019, when the fair value was €22.00 per
share.
3. The long-term investments were sold for €140,000.
4. A building and land which cost €480,000 and had a book value of €300,000 were sold for
€400,000. The cost of the land, included in the cost and book value above, was €20,000.
5. The following entry was made to record an exchange of an old machine for a new one:
Machinery .............................................................................. 160,000
Accumulated Depreciation—Machinery ................................. 40,000
Machinery .................................................................. 60,000
Cash .......................................................................... 140,000
6. A fully depreciated copier machine which cost €28,000 was written off.
7. Preference shares of €60,000 par value was redeemed for €80,000.
Statement of Cash Flows
23 - 53
Pr. 23-155 (cont.)
8. The company sold 12,000 shares of its ordinary share (€10 par) on June 15, 2019 for €25 a
share. There were 87,600 shares outstanding on December 31, 2019.
9. Bonds were sold at 104 on December 31, 2019.
10. Land that was condemned due to contamination was sold for €108,000. It had a book value
of €240,000.
Instructions
Prepare a statement of cash flows (indirect method). Ignore tax effects.
Solution 23-155
Test Bank for Intermediate Accounting, IFRS Edition, 3e
23 - 54
Statement of Cash Flows
23 - 55
Solution 23-155 (cont.)
