Question

Exercise 23-14

Pearl Inc., a greeting card company, had the following statements prepared as of December 31, 2017.

PEARL INC. COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2017 AND 2016
		12/31/17			12/31/16
Cash		$6,000			$7,100
Accounts receivable		61,400			51,500
Short-term debt investments (available-for-sale)		34,600			18,000
Inventory		40,300			60,200
Prepaid rent		4,900			4,000
Equipment		152,400			130,600
Accumulated depreciation—equipment		(34,800	)		(25,200	)
Copyrights		45,700			49,800
Total assets		$310,500			$296,000
Accounts payable		$46,100			$40,300
Income taxes payable		4,000			6,000
Salaries and wages payable		7,900			4,000
Short-term loans payable		8,100			10,000
Long-term loans payable		59,700			69,600
Common stock, $10 par		100,000			100,000
Contributed capital, common stock		30,000			30,000
Retained earnings		54,700			36,100
Total liabilities & stockholders’ equity		$310,500			$296,000

PEARL INC. INCOME STATEMENT FOR THE YEAR ENDING DECEMBER 31, 2017
Sales revenue				$333,450
Cost of goods sold				174,300
Gross profit				159,150
Operating expenses				118,800
Operating income				40,350
Interest expense		$11,600
Gain on sale of equipment		2,000		9,600
Income before tax				30,750
Income tax expense				6,150
Net income				$24,600

Additional information:

1.		Dividends in the amount of $6,000 were declared and paid during 2017.
2.		Depreciation expense and amortization expense are included in operating expenses.
3.		No unrealized gains or losses have occurred on the investments during the year.
4.		Equipment that had a cost of $19,800 and was 70% depreciated was sold during 2017.

Prepare a statement of cash flows 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).)

Answer 1

Statement of Cash Flows
For the Year Ended December 31, 2017
Cash Flows from Operating Activities:
Net income		24600
Adjustments to reconcile net income to
Net cash provided by operating activities
Depreciation expense	23460		=34800-(25200-19800*70%)
Amortization of Copyright	4100		=49800-45700
Gain on Sale of Equipment	-2000
Increase in Accounts Receivable	-9900
Decrease in Inventories	19900
Increase in Prepaid Rent	-900
Increase in accounts payable	5800
Increase in Salaries and Wages Payable	3900
Decrease in Income Taxes Payable	-2000
		42360
Net cash provided by operating activities		66960
Cash Flows from Investing Activities:
Sale of Equipment	7940		=(19800*30%)+2000
Purchase of Equipment	-41600		=(130600-19800)-152400
Purchase of Investments	-16600		=18000-34600
Net Cash used by Investing Activities		-50260
Cash Flows from Financing Activities
Principal Payment on Short-term Loan	-1900
Principal Payment on Long-term Loan	-9900
Dividend Payments	-6000
Net Cash Used by Financing Activities		-17800
Net Decrease in Cash		-1100
Cash at Beginning of Period		7100
Cash at End of Period		6000