Exercise 23-3 The income statement of Pearl Company is shown below. PEARL COMPAN

Question

Exercise 23-3

The income statement of Pearl Company is shown below.

PEARL COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2017
Sales revenue
$6,630,000
Cost of goods sold
   Beginning inventory
$1,840,000
   Purchases
4,520,000
   Goods available for sale
6,360,000
   Ending inventory
1,530,000
   Cost of goods sold
4,830,000
Gross profit
1,800,000
Operating expenses
   Selling expenses
450,000
   Administrative expenses
660,000
1,110,000
Net income
$690,000

Additional information:

1. Accounts receivable decreased $290,000 during the year.
2. Prepaid expenses increased $180,000 during the year.
3. Accounts payable to suppliers of merchandise decreased $260,000 during the year.
4. Accrued expenses payable decreased $120,000 during the year.
5. Administrative expenses include depreciation expense of $60,000.

Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2017, for Pearl Company, using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

PEARL COMPANY
Statement of Cash Flows (Partial)

Adjustments to reconcile net income to

Explanation / Answer

Solution:

Cash flow Statement- Pearl Company Particulars Details Amount Cash Flow from Operating Activities: Net Income $690,000.00 Adjustments to reconcile net income to cash flow from operating activities: Depreciation $60,000.00 Decrease in Accounts Receivables $290,000.00 Increase in Prepaid Expense -$180,000.00 Decrease in Accounts Payables -$260,000.00 Decrease in Accrued expenses Payables -$120,000.00 Total Adjustments -$210,000.00 Net Cash Flow From Operating Activites $480,000.00

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