Ravenna Company is a merchandiser that uses the indirect method to prepare the o
ID: 2454441 • Letter: R
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:
During the year, Ravenna paid a $11,400 cash dividend and it sold a piece of equipment for $5,700 that had originally cost $13,200 and had accumulated depreciation of $8,800. The company did not retire any bonds or repurchase any of its own common stock during the year.
6a. If the company debited cost of goods sold and credited inventory for $760,000 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?
6b.What is the total amount of the debits recorded in the Accounts Payable T-account during the year?
7. 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?
8. If the company debited income tax expense and credited income taxes payable $1,420 during the year, what is the total amount of the debits recorded in the Income Taxes Payable account?
9. What is the amount and direction (+ or ) of the income taxes payable adjustment to net income in the operating activities section of the statement of cash flows?
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 effect of the adjustment?
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:
Explanation / Answer
6a.
Total amount of inventory purchase = Cost of goods sold + Closing inventory – Opening inventory
= 760,000 + 104,200 – 95,000
= 769,200
Inventory purchase was made on credit. Therefore, $769,200 should come under Accounts Payable.
The required inventory account is as below:
Inventory
Debit
Credit
Opening
95,000
Cost of goods sold
760,000
Accounts payable
769,200
Closing
104,200
864,200
864,200
The credit side of accounts payable is recorded with $769,200.
6b.
The required Accounts Payable account is as below:
Accounts Payable
Debit
Credit
Cash payment
816,400
Opening
108,000
Closing
60,800
Inventory
769,200
877,200
877,200
Debit in the accounts payable indicates payment to accounts payable. Therefore, $816,400 recorded as “cash payment”.
Inventory
Debit
Credit
Opening
95,000
Cost of goods sold
760,000
Accounts payable
769,200
Closing
104,200
864,200
864,200
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.