Ravenna Company is a merchandiser that uses the indirect method to prepare the o
ID: 2468365 • 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: Ending Balance Beginning Balance Cash $ 113,600 $ 136,600 Accounts receivable 89,800 96,800 Inventory 120,600 110,000 Total current assets 324,000 343,400 Property, plant, and equipment 318,000 308,000 Less accumulated depreciation 106,000 77,000 Net property, plant, and equipment 212,000 231,000 Total assets $ 536,000 $ 574,400 Accounts payable $ 70,400 $ 125,000 Income taxes payable 54,600 74,400 Bonds payable 132,000 110,000 Common stock 154,000 132,000 Retained earnings 125,000 133,000 Total liabilities and stockholders’ equity $ 536,000 $ 574,400 During the year, Ravenna paid a $13,200 cash dividend and it sold a piece of equipment for $6,600 that had originally cost $15,600 and had accumulated depreciation of $10,400. The company did not retire any bonds or repurchase any of its own common stock during the year.
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?
What net income would the company include on its statement of cash flows?
How much depreciation would the company add to net income on its statement of cash flows?
4.
If the company debited Accounts Receivable and credited Sales for $1,320,000 during the year, what is the total amount of credits recorded in Accounts Receivable during the year?
What does the amount of these credits represent?
5.
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?
Required:Explanation / Answer
1. Net decrease in cash and cash equivalents = $ 113,600 - $ 136,600 = $ 23,000
2. Net income to be included in the statement of cash flows = $ 125,000 - $ 133,000 + $ 13,200 = $ 5,200
3. Depreciation to be added to net income = $ 106,000 - $ 77,000 + $ 10,400 = $ 39,400
4-a. Total amount of credits in Accounts receivable = $ 96,800 + $1,320,000 - $ 89,800 = $ 1,327,000
4-b. Cash sales and cash collection from customers represent cash inflows from operating activities.
Credit sales and payment to suppliers represent cash outflows for operating activities.
5-a. Increase in accounts receivable -
Decrease in accounts receivable +
5-b. Cash collected from customers < Credit sales - Cash outflows- Decrease in cash
Cash collected from customers > Credit sales - Cash inflows- Increase in cash
Cash payments > Cash collected - Net cash outflows - Decrease in cash
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