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: Cash Accounts receivable Inventory Property, plant, and equipment Less accumulated depreciation Ending Beginning Balance Balance $ 85,600 $ 102,500 69,500 74,800 93,300 85,000 249,000 238,000 (83,000) (59,500) Total assets $ 414,400 $ 440,800 $ Accounts payable Income taxes payable Bonds payable Common stock Retained earnings 54,400 $ 42,300 102,000 119,000 96,700 96,700 54,100 85,000 102,000 103,000 Total liabilities and stockholders' equity $ 414,400 $ 440,800 During the year Ravenna paid a $10,200 cash dividend and it sold a piece of equipment for $5,100 that had originally cost $11,400 and had accumulated depreciation of $7,600. The company did not retire any bonds or repurchase any of its own common stock during the year. Required: a. Would the operating activities section of the company's statement of cash flows contain an adjustment for a gain or a loss? O No O Yes b. What would be the amount and direction ( + or -) of the adjustment? (Input the amount as positive value.) (Click to select) $ (Click to select)

Answer 1

Sale Proceeds		5100
Original cost	11400
Depreciation accum.	-7600	3800
Gain on sale		1300

a. Since there is gain on the sale, answer is YES. Adjustment will be required ie reduce the profit on sale to arrive at overall profit.

b. Amount is 1300 $ and direction is _-ve (ie reduce)

Severn Corporation problem: Option D is correct.

Opening Balance	4600
CY transfer	40000
Less: Closing balance	11500
SO, actual tax paid	33100