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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 and cash equivalents	$	102,000		$	122,400
Accounts receivable		81,700			88,000
Inventory		109,700			100,000
Total current assets		293,400			310,400
Property, plant, and equipment		291,000			280,000
Less accumulated depreciation		97,000			70,000
Net property, plant, and equipment		194,000			210,000
Total assets	$	487,400		$	520,400
Accounts payable	$	64,000		$	113,700
Income taxes payable		49,700			65,700
Bonds payable		120,000			100,000
Common stock		140,000			120,000
Retained earnings		113,700			121,000
Total liabilities and stockholders’ equity	$	487,400		$	520,400

During the year, Ravenna paid a $12,000 cash dividend and it sold a piece of equipment for $6,000 that had originally cost $13,800 and had accumulated depreciation of $9,200. The company did not retire any bonds or repurchase any of its own common stock during the year.

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?

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?

Answer 1

7a.

Increase in inventory (100,000-109,700)	-9,700
Decrease in accounts payable (64,000-113,700)	-49,700
Combined amount and direction (+ or -)	-59,400

7b.

This amount represents cash outflow as cash payment to supplier for purchases is more than purchases made.

11.

Net income (113,700+12,000-121,000)	$4,700
Adjustment :
Depreciation	27,000
Gain on sale of equipment (6,000-4,600)	-1,400
Decrease in accounts receivable	6,300
Increase in inventory	-9,700
Decrease in accounts payable	-49,700
Decrease in income tax payable	-16,000
Net cash provided by operating activities	-$38,800

12.

Amount of gross cash outflows = $291,000+13,800-280,000 = $24,800