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Problem 23-3 Pearl Company has not yet prepared a formal statement of cash flows for the...


Problem 23-3
Pearl Company has not yet prepared a formal statement of cash flows for the 2017 fiscal year. Comparative balance sheets as of December 31, 2016 and 2017, and a statement of income and retained earnings for the year ended December 31, 2017, are presented as follows.

PEARL COMPANY
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 2017
($000 OMITTED)
Sales revenue
$3,840
Expenses
Cost of goods sold
$1,190
Salaries and benefits
720
Heat, light, and power
70
Depreciation
80
Property taxes
20
Patent amortization
30
Miscellaneous expenses
10
Interest
30
2,150
Income before income taxes
1,690
Income taxes
845
Net income
845
Retained earnings—Jan. 1, 2017
300
1,145
Stock dividend declared and issued
615
Retained earnings—Dec. 31, 2017
$530

PEARL COMPANY
COMPARATIVE BALANCE SHEETS
AS OF DECEMBER 31
($000 OMITTED)
Assets
2017
2016
Current assets
Cash
$337
$90
U.S. Treasury notes (available-for-sale)
10
50
Accounts receivable
780
490
Inventory
710
570
Total current assets
1,837
1,200
Long-term assets
Land
160
80
Buildings and equipment
920
610
Accumulated depreciation—buildings and equipment
(190
)
(110
)
Patents (less amortization)
120
150
Total long-term assets
1,010
730
Total assets
$2,847
$1,930
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable
$423
$360
Income taxes payable
39
30
Notes payable
340
340
Total current liabilities
802
730
Long-term notes payable—due 2019
180
180
Total liabilities
982
910
Stockholders’ equity
Common stock
1,335
720
Retained earnings
530
300
Total stockholders’ equity
1,865
1,020
Total liabilities and stockholders’ equity
$2,847
$1,930

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Answer #1
Pearl Company
Statement of Cash Flows: Indirect Method
For the year ended December 31, 2017
Cash Flows from Operating Activities
Net Income 845
Adjustments to reconcile net income with net cash from operations
Depreciation 80
Amortization 30
Increase in Accounts Receivable (290)
Increase in Inventory (140)
Increase in Accounts Payable 63
Increase in Income Taxes Payable 9 (248)
Net cash flows from Operating Activities 597
Cash Flows from Investing Activities
Cash paid for aquisition of land (80)
Cash paid for acquisition of buildings and equipment (310)
Net cash used in Investing Activities (390)
Cash Flows from Financing Activities 0
Net increase in cash and cash equivalents 207
Beginning cash and cash equivalents 140
Ending cash and cash equivalents 347
Beginning Cash and Cash Equivalents Ending Cash and Cash Equivalents
Cash 90 337
US Treasury Notes 50 10
Total 140 347
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