I\'m not sure if the answers I have in there already are correct or not. Can you
ID: 2520157 • Letter: I
Question
I'm not sure if the answers I have in there already are correct or not. Can you please INCLUDE THE CALCULATIONS. Thank you!
The income statement of Pearl Company is shown below PEARL COMPANY INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2017 Sales revenue $6,890,000 Cost of goods sold Beginning inventory Purchases Goods available for sale Ending inventory Cost of goods sold $1,910,000 4,410,000 6,320,000 1,620,000 4,700,000 2,190,000 Gross profit Operating expenses Selling expenses Administrative expenses 460,000 1,160,000 $1,030,000 700,000 Net income Additional information: 1. Accounts receivable decreased $350,000 during the year 2. Prepaid expenses increased $160,000 during the year. 3. Accounts payable to suppliers of merchandise decreased $300,000 during the year. 4. Accrued expenses payable decreased $90,000 during the year. 5. Administrative expenses include depreciation expense of $50,000 Prepare the operating activities section of the statement of cash flows using the direct methodExplanation / Answer
Ans. Calculation of Cash flow from Operating activities using the direct method
Cashflow from Operating activities (value in $)
Sales = 6890000
Less: Purchases = (4410000)
Less: Selling Exp. = (460000)
Less: Admn Exp(excluding dep.) = (650000)
Current asset adjustment
Add: Account receivable decrease = 350000
Less: Prepaid exp increase = (160000)
Less: Account payable decrease = (300000)
Less: Account payable exp decrease = (90000)
Total cashflowfrom Operating activity= 1170000
Cash flow from Operating activity is $1170000
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Note: In direct method we are started from Sales, in Sales we will deducting all cash expenses during the year and after that we will adjust current assets increase or decrease adjustment.
In that we do not require to adjust Inventory cost, because that are already adjusted in Profit and loss account.