Question

Ravenna Company is a merchandiser that uses the indirect method to prepare the operating activities section of its statement of cash flows. Its balance sheet for this year is as follows:

	Ending Balance			Beginning Balance
Cash	$	48,000		$	57,000
Accounts receivable		41,000			44,000
Inventory		55,000			50,000
Total current assets		144,000			151,000
Property, plant, and equipment		150,000			140,000
Less accumulated depreciation		50,000			35,000
Net property, plant, and equipment		100,000			105,000
Total assets	$	244,000		$	256,000
Accounts payable	$	32,000		$	57,000
Income taxes payable		25,000			28,000
Bonds payable		60,000			50,000
Common stock		70,000			60,000
Retained earnings		57,000			61,000
Total liabilities and stockholders’ equity	$	244,000		$	256,000

During the year, Ravenna paid a $6,000 cash dividend and it sold a piece of equipment for $3,000 that had originally cost $6,000 and had accumulated depreciation of $4,000. The company did not retire any bonds or repurchase any of its own common stock during the year.

Required:

1. What is the amount of the net increase or decrease in cash and cash equivalents that would be shown on the company’s statement of cash flows?

2. What net income would the company include on its statement of cash flows?

3. How much depreciation would the company add to net income on its statement of cash flows?

4-a. If the company debited Accounts Receivable and credited Sales for $600,000 during the year, what is the total amount of credits recorded in Accounts Receivable during the year?

4-b. What does the amount of these credits represent?

5-a. What is the amount and direction (+ or −) of the accounts receivable adjustment to net income in the operating activities section of the statement of cash flows?

5-b. What does this adjustment represent?

6-a. If the company debited cost of goods sold and credited inventory for $400,000 during the year, what is the total amount of inventory purchases recorded on the debit side of the Inventory T-account and the credit side of the Accounts Payable T-account?

6-b. What is the total amount of the debits recorded in the Accounts Payable T-account during the year?

6-c. What does the amount of these debits represent?

7-a. What is the combined amount and direction (+ or −) of the inventory and accounts payable adjustments to net income in the operating activities section of the statement of cash flows?

7-b. What does this amount represent?

8-a. If the company debited income tax expense and credited income taxes payable $700 during the year, what is the total amount of the debits recorded in the Income Taxes Payable account?

8-b. What does the amount of these debits represent?

9-a. What is the amount and direction (+ or −) of the income taxes payable adjustment to net income in the operating activities section of the statement of cash flows?

9-b. What does this adjustment represent?

10. Would the operating activities section of the company’s statement of cash flows contain an adjustment for a gain or a loss? What would be the amount and direction (+ or ̶ ) of the adjustment?

11. What is the amount of net cash provided by (used in) operating activities in the company’s statement of cash flows?

12. What is the amount of gross cash outflows reported in the investing section of the company’s statement of cash flows?

13. What is the company’s net cash provided by (used in) investing activities?

14. What is the amount of gross cash inflows reported in the financing section of the company’s statement of cash flows?

15. What is the company’s net cash provided by (used in) financing activities?

Answer 1

Ravenna Company Bal Cash Property, plant, and equipment 140000 Sale 6000 16000 Bal 150000 156000 156000 2000 Statement of Cashflow For the period endng ... Cashflow from Operating Activity Net Income (57000 + 6000 - 61000) Adjustments: Depreciation Gain on sale Decrease in Accounts Receivable Increase in Inventory Decrease in Accounts Payable Decrease in Income Taxes Payable Cash used for Operating Activity Sale 19000 -1000 3000 -5000 -25000 -3000 Accumulated Depreciation 4000 Bal Depreciation 50000 54000 35000 19000 Bal 54000 -12000 -10000 Equip. Gain on sale Sale of Equip. 6000 Accumulated 1000 Cash 4000 3000 Cashflow from Investing Activity Equipment Purchased Equipment sold Cash used for Investing Activity - 16000 3000 -13000 7000 7000 Cashflow from Financing Activity Bonds issued 10000 Common Stock issued 10000 Dividends paid -6000 Cash generated from Financing Activity Net Decrease in Cash Beginning Cash Balance Ending Cash Balance 14000 -9000 57000 48000 0