Question

Selected data for Kris Corporation’s comparative balance sheets for Year 1 and Year 2 are as follows:

		Year 1				Year 2
Assets
Cash		$	100,000			$	(50,000	)
Accounts receivable (net)			50,000				100,000
Inventory			100,000				250,000
Equipment (net)			300,000				350,000
Total assets		$	550,000			$	650,000
Liabilities and Equity
Accounts payable		$	150,000				100,000
Income taxes payable			80,000				30,000
Bonds payable			100,000				80,000
Common stock			100,000				200,000
Retained earnings			120,000				240,000
Total liabilities and Equity		$	550,000			$	650,000

Using the indirect method to create the operating activities section of the statement of cash flows, the cash flow recorded based on the change in inventory would be:

• a decrease of $400,000

• an increase of $400,000

• an increase of $150,000

• a decrease of $150,000.

Answer 1

a decrease of $150,000

Working:

Inventory in Year 1 was $ 100,000 and in Year 2 was $ 250,000. Increased figure in inventory shows that inventory is purchased more than it is sold.When more inventory is purchased , then cash will be paid and it shows outflows of cash.Thus, cash will be decreased by $ 150,000 in this case.