Question

Shown below are comparative balance sheets for Pearl Industries.

Pearl Industries Comparative Balance Sheets December 31
Assets		2022			2021
Cash		$ 190,400			$ 61,600
Accounts receivable		246,400			212,800
Inventory		467,600			529,200
Land		224,000			280,000
Equipment		728,000			560,000
Accumulated depreciation—equipment		(184,800	)		(89,600	)
Total		$1,671,600			$1,554,000
Liabilities and Stockholders’ Equity
Accounts payable		$ 109,200			$ 120,400
Bonds payable		420,000			560,000
Common stock ($1 par)		604,800			487,200
Retained earnings		537,600			386,400
Total		$1,671,600			$1,554,000

Additional information:

1.		Net income for 2022 was $260,400.
2.		Depreciation expense was $95,200.
3.		Cash dividends of $109,200 were declared and paid.
4.		Bonds payable amounting to $140,000 were redeemed for cash $140,000.
5.		Common stock was issued for $117,600 cash.
6.		No equipment was sold during 2022.
7.		Land was sold for its book value.

Prepare a statement of cash flows for 2022 using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -45,000, or in parenthesis e.g. (45,000)).

Answer 1

Solution:

PEARL INDUSTRIES
Statement of Cash Flows [Indirect Method]
For Current Year Ended December 31, 2022
Cash flows from operating activities:
Net Income	$     260,400
Adjustments to reconcile net income to net cash provided by operating:
Depreciation expense	$       95,200
Changes in current operating assets and liabilities:
Increase in Account Receivable [212800-246400]	$     (33,600)
Decrease in Inventory [529200-467600]	$       61,600
Decrease in accounts payable [109200-120400]	$     (11,200)
Net cash flows from operating activities		$     372,400
Cash flow from[used for] investing activities:
Cash from sale of land [280000-224000]	$       56,000
Cash used for purchase of equipment [560000-728000]	$ (168,000)
Net cash flow from investing activities (B)		$   (112,000)
Cash flow from [used for] financing activities:
Cash from sale of common stock	$     117,600
Cash used for payment of bonds	$ (140,000)
Cash used for dividends	$ (109,200)
Net Cash flow from financing activities (C )		$   (131,600)
Net Increase in cash flow		$     128,800
Cash balance at December 31, 2021		$        61,600
Cash balance at December 31, 2022		$     190,400