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 Balance			Beginning Balance
Cash and cash equivalents	$	61,000		$	72,650
Accounts receivable		51,200			55,000
Inventory		68,700			62,500
Total current assets		180,900			190,150
Property, plant, and equipment		186,000			175,000
Less accumulated depreciation		62,000			43,750
Net property, plant, and equipment		124,000			131,250
Total assets	$	304,900		$	321,400
Accounts payable	$	40,000		$	71,200
Income taxes payable		31,200			36,700
Bonds payable		75,000			62,500
Common stock		87,500			75,000
Retained earnings		71,200			76,000
Total liabilities and stockholders’ equity	$	304,900		$	321,400

During the year, Ravenna paid a $7,500 cash dividend and it sold a piece of equipment for $3,750 that had originally cost $7,800 and had accumulated depreciation of $5,200. The company did not retire any bonds or repurchase any of its own common stock during the year.

PLEASE do all 6 questions

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 statement of cash flows?

2. What net income would the company include on its statement of cash flows?

3. How much depreciation would the company add to net income on its statement of cash flows?

4-a. If the company debited Accounts Receivable and credited Sales for $750,000 during the year, what is the total amount of credits recorded in Accounts Receivable during the year?

4-b. What does the amount of these credits represent?

5-a. What is the amount and direction (+ or −) of the accounts receivable adjustment to net income in the operating activities section of the statement of cash flows?

5-b. What does this adjustment represent?

6-a. If the company debited cost of goods sold and credited inventory for $500,000 during the year, what is the total amount of inventory purchases recorded on the debit side of the Inventory T-account and the credit side of the Accounts Payable T-account?

6-b. What is the total amount of the debits recorded in the Accounts Payable T-account during the year?

6-c. What does the amount of these debits represent?

Answer 1

1. Net Increase (Decrease) in Cash = $61000-72650 = ($11650) i.e. net decrease

2. Net Income = $71200+7500-76000 = $2700

3. Depreciation = $62000 - (43750-5200) = $23450

4a. Total Amounts of credit in receivable = $55000+750000-51200 = $753800

4b. These credits represent Cash Collected from customers

5a. Decrease in Accounts Receivable +$3800 i.e. $55000-51200

5b. This adjustment represent more cash has been collected than sales

6a. Inventory Purchases = $68700+500000-62500 = $506200

6b. Total amount of debits = $71200+506200-40000 = $537400

6c. These debits represent amount paid to suppliers for inventory