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Ramon Company reports net income of $305,000 for the year ended December 31, 2019. It also...

Ramon Company reports net income of $305,000 for the year ended December 31, 2019. It also reports $93,700 depreciation expense and a $10,000 loss on the sale of equipment. Its comparative balance sheet reveals a $40,200 increase in accounts receivable, a $10,200 decrease in prepaid expenses, a $15,200 increase in accounts payable, a $12,500 decrease in wages payable, a $75,000 increase in equipment (cash is involved), and a $100,000 decrease in long - term notes payable (cash is involved). Calculate the increase in cash for Year ended December 31, 2019.
Select one:
a. $381,400.
b. $206,400.
c. $281,400.
d. $216,400.

Select one:
a. payment of dividends.
b. sale of treasury stock.
c. payment of principal amounts of long-term debt.
d. payment of interest on long-term debt


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Solutions

Expert Solution

Ans) b. $206,400.

Increase in cash for Year ended December 31, 2019 = Net Income + Depreciation + Loss on sale of equipment + Working capital changes - Purchase of equipment - Repayment of loan

Net Income = $ 305000

Depreciation = $ 93700 ( Depreciation being non cash item should be added back to profit in order to arrive increase in cash)

Loss on sale of equipment = $ 10000 (Loss on sale of equipment should be added back to net income as i does not etail actual cash outflow)

Working capital changes

Particulars Incresase/Decrease in cash
Increase in Account receivables -40200
Decrease in prepaid expenses 10200
Increase in accounts payable 15200
Decrease in wages payable -12500
Total cash inflow/outflow due to EX changes -27300

Purchase of equipment = $ 75000

Repayment of loan = $ 100000

Thus  Increase in cash for Year ended December 31, 2019 = 305000 + 93700 + 10000 -27300 - 75000 - 100000

= 206400 $


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