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 Beginning Balance Balance Cash $ 110,200 $ 132,350 Accounts receivable 87,800 94,600 Inventory 117,900 107,500 Total current assets 315,900 334,450 Property, plant, and equipment 312,000 301,000 Less accumulated depreciation 104,000 75,250 Net property, plant, and equipment 208,000 225,750 Total assets $ 523,900 $ 560,200 Accounts payable Income taxep payable Ronda 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. 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?

Answer 1

Sale value of equipment		$   6,450
Less: Book value of equipment sold
Cost of equipment	$    15,000
Less: Accumulated depreciation	$ (10,000)
Book value		$   5,000
Gain on sale		$   1,450

Gain of $1,450 will show as -1,450 in adjustment