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	$	85,600	$	102,500
Accounts receivable		69,500		74,800
Inventory		93,300		85,000
Total current assets		248,400		262,300
Property, plant, and equipment		249,000		238,000
Less accumulated depreciation		83,000		59,500
Net property, plant, and equipment		166,000		178,500
Total assets	$	414,400	$	440,800
Accounts payable	$	54,400	$	96,700
Income taxes payable		42,300		54,100
Bonds payable		102,000		85,000
Common stock		119,000		102,000
Retained earnings		96,700		103,000
Total liabilities and stockholders’ equity	$	414,400	$	440,800

During the year, Ravenna paid a $10,200 cash dividend and it sold a piece of equipment for $5,100 that had originally cost $11,400 and had accumulated depreciation of $7,600. The company did not retire any bonds or repurchase any of its own common stock during the year.

1.

value:
1.33 points

Required information

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?

Answer 1

Ravenna Company
Cash Flow Statement
A. Cash Flows from Operating Activity
Net Income		$        3,900.00
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation expense	$      31,100.00
Profit on sale of Equipment	$      (1,300.00)
Changes in current operating assets and liabilities:
Decrease in Accounts receivables	$        5,300.00
Decrease in Accounts payables	$    (42,300.00)
Increase in Inventory	$      (8,300.00)
Decrease in income taxes payable	$    (11,800.00)
		$    (27,300.00)
Net cash flow from Operating activities		$    (23,400.00)
B. Cash flows from Investing Activities
Sale of Equipment	$        5,100.00
Purchase of Equipment	$    (22,400.00)
Net cash flow used for investing activities		$   (17,300.00)
C. Cash Flows from Financing activities
Cash received from sale of common stock	$      17,000.00
Issue of Bonds	$      17,000.00
Cash paid for dividends	$    (10,200.00)
Cash flows from Financing activities		$      23,800.00
Net Increase (Decrease) in Cash [A+B+C]		$    (16,900.00)
Cash at the beginning		$    102,500.00
Cash at the end		$      85,600.00

Working notes

Calculation of net income
Beginning retained earnings balance	$    103,000.00
Less: Dividend distributed	$      10,200.00
Subtotal	$      92,800.00
Ending retained earnings balance	$      96,700.00
Net income (96700-92800)	$        3,900.00

Equipment purchased during the year
(A)	Beginning balance of equipment at cost	$ 238,000.00
(B)	Less; Cost of Equipment sold	$     11,400.00
(C=A-B)	Subtotal	$ 226,600.00
(D)	Ending balance of equipment at cost	$ 249,000.00
(E=D-C)	Purchase of Equipment	$     22,400.00