Pearl Co. reported $144,400 of net income for 2025. The accountant, in preparing the statement of cash flows, noted the following items occurring during 2025 that might affect cash flows from operating activities. 1. 2. 3. 4. 5. 6. 7. 8. Pearl purchased 100 shares of treasury stock at a cost of $20 per share. These shares were then resold at $25 per share. Pearl sold 100 shares of IBM common at $180 per share. The acquisition cost of these shares was $140 per share. There were no unrealized gains or losses recorded on this investment in 2025. Pearl revised its estimate for bad debts. Before 2025, Pearl's bad debt expense was 1% of its receivables. In 2025, this percentage was increased to 2%. Net accounts receivable decreased by $12,400 during 2025. Pearl issued 500 shares of its $10 par common stock for a patent. The market price of the shares on the date of the transaction was $23 per share. Depreciation expense is $35,800. Pearl Co. holds 40% of the Nirvana Company's common stock as a long-term investment. Nirvana Company reported $26,200 of net income for 2025. Nirvana Company paid a total of $2,000 of cash dividends to all investees in 2025. Pearl declared a 10% stock dividend. One thousand shares of $10 par common stock were distributed. The market price at date of issuance was $20 per share. Prepare a schedule that shows the net cash flow from operating activities using the indirect method. Assume no items other than those listed above affected the computation of 2025 net cash flow from operating activities. (Show amounts that decrease cash flow with either a-sign e.g.-15,000 or in parenthesis e.g. (15,000).)
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
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