Question

45-48

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	$	64,400		$	76,900
Accounts receivable		53,200			57,200
Inventory		71,400			65,000
Total current assets		189,000			199,100
Property, plant, and equipment		192,000			182,000
Less accumulated depreciation		64,000			45,500
Net property, plant, and equipment		128,000			136,500
Total assets	$	317,000		$	335,600
Accounts payable	$	41,600		$	74,000
Income taxes payable		32,400			39,600
Bonds payable		78,000			65,000
Common stock		91,000			78,000
Retained earnings		74,000			79,000
Total liabilities and stockholders’ equity	$	317,000		$	335,600

During the year, Ravenna paid a $7,800 cash dividend and it sold a piece of equipment for $3,900 that had originally cost $8,400 and had accumulated depreciation of $5,600. The company did not retire any bonds or repurchase any of its own common stock during the year.

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 $520,000 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?

7-a. 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?

7-b. What does this amount represent?

8-a. If the company debited income tax expense and credited income taxes payable $940 during the year, what is the total amount of the debits recorded in the Income Taxes Payable account?

8-b. What does the amount of these debits represent?

Answer 1

5.a. Amount and direction (+ or −) of the accounts receivable adjustment to the net income in the operating activities section of the statement of cash flows (+) 4,000--- cash inflow as asset decreases.

6.a.If the company debited cost of goods sold and credited inventory for $520,000 during the year, 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.

	Debit	Credit
Inventory
Opening Balance	65,000
COGS		520,000
Purchases(Bal. fig.)	526,400
Closing balance		71,400
	455000	591,400

	Debit	Credit
Accounts payable
Opening Balance		74,000
Purchases		526,400
Debits recorded (Bal. fig.)	558,800
Closing balance	41,600
	600,400	600,400

6.b.Total amount of the debits recorded in the Accounts Payable T-account during the year---- $ 558,800.

.

7.a.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: (65,000 - 71,400) + (74,000 - 41,600) = $ (-)38,800--- both cash outflows- current asset increases& liability decreases)

.

8.a. If the company debited income tax expense and credited income taxes payable $700 during the year, Total amount of the debits recorded in the Income Taxes Payable account: $ 8,140

	Debit	Credit
Income taxes payable
Opening Balance		39,600
Income-tax		940
Debits recorded(Bal. fig.)	8,140
Closing balance	32,400
	40,540	40,540