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 Total current assets Property, plant, and equipment Less accumulated depreciation Net property, plant, and equipment Total assets Ending Balance $ 110,200 87,800 117,900 315,900 312,000 104,000 208,000 $ 523,900 Beginning Balance $ 132,350 94,600 107,500 334,450 301,000 75,250 225,750 $ 560,200 Accounts payable Income taxes payable Bonds payable Common stock Retained earnings Total liabilities and stockholders' equity $ 68,800 53,400 129,000 150,500 122,200 $ 523,900 $ 122,200 71,500 107,500 129,000 130,000 $ 560,200 During the year, Ravenna paid a $12,900 cash dividend and it sold a piece of equipment for $6,450 that had originally cost $15,000 and had accumulated depreciation of $10,000. 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 statemer of cash flows? Net in cash and cash equivalents Prov SO

Answer 1

1)

Net decrease in cash and cash equivalents

$ 22,150.00

Workings:

Cash Flow Statement (Indirect Method)
Particulars	Amount	Amount
Net Income		$        5,100.00
Adjustments to reconcile net income to:
Net cash provided by operating activities
Depreciation	$      38,750.00
Gain on sale of Equipment	$       (1,450.00)
Decrease in Accounts Receivable	$        6,800.00
Increase in Inventory	$    (10,400.00)
Decrease in Income Tax Payable	$    (18,100.00)
Decrease in Accounts Payable	$    (53,400.00)
Net Cash Generated		$    (37,800.00)
Net cash provided by operating activities	(A)	$    (32,700.00)
Cash Flows from Investing Activities
Sale of Equipment	$        6,450.00
Purchase of Equipment	$    (26,000.00)
Net cash provided by investing activities	(B)	$    (19,550.00)
Cash Flows from Financing Activities
Dividend Paid	$    (12,900.00)
Issuance of Bonds	$      21,500.00
Increase in Common Stock	$      21,500.00
Net cash provided by Financing activities	(C')	$      30,100.00
Net increase/decrease in cash	(A+B+C')	$    (22,150.00)
Add:Opening cash balance		$   1,32,350.00
Closing cash balance		$   1,10,200.00

Equipment
Beg. Bal.	$ 3,01,000.00	Disposal	$    15,000.00
Cash	$    26,000.00	End. Bal.	$ 3,12,000.00
	$ 3,27,000.00		$ 3,27,000.00
Accumulated Depreciation
Disposal	$    10,000.00	Beg. Bal.	$    75,250.00
End. Bal.	$ 1,04,000.00	Depreciation	$    38,750.00
	$ 1,14,000.00		$ 1,14,000.00
Disposal
Equipment	$    15,000.00	Accu. Dep.	$    10,000.00
Gain	$      1,450.00	Cash	$      6,450.00
	$    16,450.00		$    16,450.00
Retained Earnings
Dividend	$    12,900.00	Beg. Bal	$ 1,30,000.00
End. Bal.	$ 1,22,200.00	Net Income	$      5,100.00
	$ 1,35,100.00		$ 1,35,100.00

Is this correct?