7. In preparing a statement of cash flows, the following figures are considered in the calculation of cash flows from operating activities (using the indirect method): Depreciation Expense P980,000 Gain on Sale of Non-Current Assets 40,000 Increase in Inventories 130,000 Decrease in Receivables 100,000 Increase in Payables 80,000 What will be the net effect of these items? a. Addition to operating profit P890,000 b. Subtraction from operating profit P890,000 c. Addition to operating profit P1,070,000 d. Addition to operating profit P990,000 8. Part of a corporation's draft statement of cash flows is shown below: Profit before Tax P1,864,000 Depreciation Expense (216,000) Proceeds of Sale of Non-Current Assets 36,000 Increase in Inventory (33,000) Increase in Accounts Payable 44,000 The following criticisms of the above extract have been made: 1. Depreciation expense should have been added not deducted. 2. Increase in inventory should have been added not deducted. 3. Increase in accounts payable should have been deducted not added. 4. Proceeds of sale of non-current assets should not appear in this section of the statement of cash flows. Which of these criticisms are valid? a. 2 and 3 only b. 1 and 4 only C. 1 and 3 only d. 2 and 4 only 9. In preparing a statement of cash flows, which of the following items could form part of cash flows from financing activities? 1. Proceeds of sale of premises 2. Dividends received 3. Bonus issue of shares 4. Settlement of notes payable a. 1 only b. 2 only c. 3 only d. 4 only 10. In the preparation of the financial statements for 2020, the ending inventory was understated by P300,000. What will be the effect of this error if it remains uncorrected? a. The 2020's profit will be overstated and 2021's profit will be understated. b. The 2020's profit will be understated but there will be no effect on 2021's profit. c: The 2020's profit will be understated and 2021's profit will be overstated. d. The 2020's profit will be overstated but there will be no effect on 2021's profit. 11. On July 1, 2020, E. Cristobal Corp. acquired a service vehicle for P200,000. It is to be depreciated on a straight line basis at 20% per year. The estimated salvage value is P40,000 at the end of five years. The corporation makes proportionate depreciation charges in the year of purchase. The P200,000 cost was correctly credited but posted as a debit to the repairs account. How will the profit for the year ended Dec. 31, 2020 be affected by the error? Understated by P184,000 b. Understated by P168,000 C. Overstated by P184,000 d. Overstated by P200,000 a