Part I. Answer the following questions. Choose the letter of the correct answer.

1. The cash or operating cycle refers to:

a. the length of time that elapses between the time an item is purchased and payment is made

b. the length of time it takes to collect receivables from customers who have been extended special credit terms

c. the length of time that elapses between an outlay of cash for resources and the receipt of cash from the sale of goods or services

2. Which of the following equations is not true?

a. Assets-Liabilities=Owner's Equity

b. Assets=Liabilities+Owner's Equity

c. Assets+Liabilities=Owner's Equity

d. Assets-Owner's Equity=Liabilities

3. The following statements relate to the financial statements. Which is not?

a. The management of an enterprise has the primary responsibility for the preparation and presentation of the financial statements of the enterprise.

b. Financial statements do not provide all the information that users may need to make economic decisions since they largely portray the financial effects of past events and do not necessarily provide nonfinancial information.

c. The purpose of financial statement is to provide information about the financial position, performance and cash flows of an enterprise that is useful to management in making economic decisions.

d. Financial statements also show the results of the stewardship of management, or the accountability of the management, or the accountability of the management for the resources entrusted to it.

4. The following statements relate to the principles of statement presentation, except:

a. The financial statements should be based on historical cost rather than market value.

b. offsetting of receivables and payable balances with the same person is allowed if a right of offset exists or if separate settlement of those balances is expected.

c. a balance sheet should classify cash to distinguish between cash on hand, petty cash fund, cash in bank and cash equivalent.

d. the financial statements should present fairly the financial position, performance and cash flows of an enterprise.

5. Which of the following statements is correct about the principles of statement presentation?

a. financial statements are prepared on a liquidating concern with appropriate disclosure.

b. an enterprise should prepare its financial statements, except for cash flows information, under the accrual basis of accounting.

c. technically, offsetting applies to reporting of assets net of valuation.

d. the financial statements should present fairly only the financial position and performance of an enterprise because anyway, the cash flows are not very significant in making decsions.

6. The overall principles of statement presentation include (choose the incorrect one):

a. financial statements should be prepared on a going concern basis.

b. an enterprise should prepare its financial statements in accordance with the cash basis of accounting.

c. management should select and apply accounting policies that are in conformity with the standards.

d. the financial statements should present fairly the financial position, performance and cash flows of the enterprise.

7. Financial statements must be prepared:

a. yearly

b. semi-annually

c. monthly

d. quarterly

8. Technically, offsetting in financial statements is accomplished when:

a. the allowance for doubtful accounts is deducted from accounts receivable.

b. the total liabilities are deducted from total assets to arrive at net assets.

c. gains or losses from disposal of noncurrent assets are reported by deducting from the proceeds the carrying amount of the assets and the relating selling cost.

d. the accumulated depreciation is deducted from property, plant and equipment.

9. These portray the financial effects of transactions and other events by grouping them into broad classes according to their economic characteristics.

a. audit reports

b. financial reports

c. financial statements

d. interim statements

10. The basic components of the financial statements do not include:

a. balance sheet

b. statement of cost of goods sold

c. income statement

d. statement of cash flows

11. The basic components of financial statements include (choose the incorrect one):

a. statement of changes in equity

b. statement of recognized gains and losses

c. statement of retained earnings

d. cash flow statement

12. The purpose of accounting is:

a. to provide comprehensive reports on the debits and credits.

b. to provide comprehensive financial information about a business or other economic entity.

c. to classify the business transactions of a business entity.

d. to interpret the results of operations of a business entity.

13. The principles, which constitute the ground rules for financial reporting, are termed as generally accepted accounting principles. To qualify as generally accepted, an accounting principle:

a. must guide entrepreneurs in the choice of investments.

b. must guide corporate managers in the preparation of financial statements which should be understood by widely scattered stockholders.

c. must guide corporate managers in the preparation of financial statements which will be used in making collective bargaining agreements with trade unions.

d. must receive substantial authoritative support from the public and the members of the profession.

14. This is an assumption by accountants that a business will continue to operate indefinitely unless specific evidences to the contrary exist, as for example, an impending bankruptcy.

a. matching principle

b. going concern principle

c. objectivity principle

d. cost principle

15. In analyzing a company's financial statements, which financial statement would a potential investor primarily use to assess the company's profitability?

a. income statement

b. statement of retained earnings

c. cash flow statement

d. balance sheet

16. As a minimum, information to be presented on the face of the income statement are as follows, except:

a. revenue

b. net income or loss of the period

c. provision

d. finance cost

17. Which of the following is not a selling expense?

a. freight-out

b. advertising expense

c. freight-in

d. store supplies consumed

18. The accountant for the Lintz Sales Company is preparing the income statement for 2012 and the balance sheet at Dec. 31, 2012. The Jan. 1, 2012 merchandise inventory balance will appear.

a. only in the cost of goods sold section of the income statement.

b. as a deduction in the cost of goods sold section of the income statement and as a current asset on the balance sheet

c. as an addition in the cost of goods sold section of the income statement and as a current asset on the balance sheet.

d. only as an asset on the balance sheet.

19. Which of the following items will not appear in the retained earnings statement?

a. dividends

b. prior period adjustment

c. net loss

d. discontinued operations

20. Comprehensive income includes all of the following except

a. dividend revenue

b. losses on disposal of assets

c. unrealized holding gains

d. investments by owners

21. Treasury stock should be reported as a(n)

a. other asset

b. reduction of stockholders equity

c. current asset

d. investment

22. The basis for classifying assets as current or noncurrent is conversion to cash within

a. the accounting cycle or one year, whichever is shorter.

b. the operating cycle or one year, whichever is shorter.

c. the accounting cycle or one year, whichever is longer.

d. the operating cycle or one year, whichever is longer.

23. Which of the following would be classified in a different major section of a balance sheet from the others?

a. stock investment in affiliate

b. capital stock

c. common stock subscribed

d. stock dividend distributable

24. Gross billings for merchandise sold by Lang Company to its customers last year amounted to 12,720,000; sales returns and allowances were 370,000, sales discounts were 175,000, and freight-out was 140,000. Net sales last year for Lang Company were

a. 12,035,000

b. 12,350,000

c. 12,720,000

d. 12,175,000

25. An enterprise should prepare cash flow statement and should prepare it as:

a. integral part of the enterprise's basic financial statements

b. supplementary financial statement

c. supporting schedule for amount appearing as cash and cash equivalent

d. note to financial statement

26. Cash flows in the cash flow statement are:

a. inflows and outflows of cash and cash equivalents.

b. inflows of cash and cash equivalents.

c. inflows and outflows of cash.

d. outflows of cash and cash equivalents.

27. Cash receipts from issuing shares and other equity instruments are:

a. cash inflows from investing activities

b. cash inflows from financing activities

c. cash outflows for investing activities

d. cash outflows for financing activities

28. In a cash flow statements, interest payments to lenders and other creditors should be classified as:

a. borrowing activities

b. operating activities

c. financing activities

d. lending activities

29. In a cash flow statement, alternatively interest received and dividend received may be classified as cash flow from

a. financing activities

b. operating activities

c. investing activities

d. revenue activities

30. How should a gain from the sale of used equipment for cash be reported in a cash flow statement using the indirect method?

a. in investment activities as a reduction of the cash inflow from the sale

b. in investment activities as a cash outflow

c. in operating activities as a deduction from income

d. in operating activities as an addition to income

31. In a cash flow statement, which of the following items is reported as a cash flow from financing activities?

1. Payments to retire mortgage notes

2. Interest payments on mortgage notes

3. Dividend payments

a. 1,2, and 3

b. 2 and 3

c. 1 only

d. 1 and 2

32. In a statement of cash flows, the cash flows from investing activities section should report

a. stock dividends received

b. a major repair to machinery charged to accumulated depreciation

c. the assignment of accounts receivable

d. the issuance of common stock in exchange for a factory building

33. The primary purpose of the statement of cash flows is to provide information

a. that is useful in assessing cash flow prospects

b. about the cash receipts and cash payments of an entity during a period

c. about the entity's ability to meet its obligations, its ability to pay dividends, and its needs for external financing.

d. about the operating, investing, and financing activities of an entity during a period

34. Which of the following would least likely be shown in one of the three activity sections of the statement of cash flows?

a. refinancing a bond issue currently due with a new bond issue.

b. an increase in trade accounts receivable over the period

c. purchase of a subsidiary corporation

d. a decrease in long-term notes payable over the period

Part II. Prepare statement of cash flow using indirect method. See photo no. 1 for the example format.

December 31, December 31 2013 2012 Cash P40,900 P10,20C Accounts receivable (net) 38,300 20,30C Inventory 35,000 42,00C Long-term investments O 15,00C Property, plant & equipment 231,500 150,00C Accumulated depreciation (37,700) (25,000 TOTAL ASSETS P308,000 P212,50C Accounts payable P17,000 P26,50C Accrued liabilities 21,000 17,00C Long-term notes payable 70,000 50,00C Common stock 130,000 90,0OC Retained earnings 70,000 29,00C TOTAL LIABILITIES AND EQUITY P308,000 P212,50C Additional data: 1. Net income for the year 2013, P66,000. 2. Depreciation on plant assets for the year, P12,700. 3. Sold the long-term investments for P28,000 4. Paid dividends of P25,000. 5. Purchased machinery costing P21,500, paid cash. 6. Purchased machinery and gave a P60,000 long-term note payable. 7. Paid a P40,000 long-term note payable by issuing common stock.The balance sheets for Kid Company showed the following information. Additional information concerning transactions and events during 2013 are presented below. Kid Company Balance Sheet . The indirect method adjusts accrual basis net profit or loss for the effects of non-cash transactions. The operating cash flows section of the statement of cash flows under the indirect method would appear something like this: Profit before interest and income taxes XX,XXX Add back depreciation XX.XXX Add back impairment of assets XX,XXX Increase in receivables XX,XXX Decrease in inventories XX,XXX Increase in trade payables XX, XXX Interest expense XX,XXX Less Interest accrued but not yet paid xX,XXX Interest paid XX,XXX Income taxes paid XX,XXX Net cash from operating activities XX,XXX