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	$	126,600		$	152,250
Accounts receivable		100,000			107,800
Inventory		134,300			122,500
Total current assets		360,900			382,550
Property, plant, and equipment		354,000			343,000
Less accumulated depreciation		118,000			85,750
Net property, plant, and equipment		236,000			257,250
Total assets	$	596,900		$	639,800
Accounts payable	$	78,400		$	139,200
Income taxes payable		60,800			83,100
Bonds payable		147,000			122,500
Common stock		171,500			147,000
Retained earnings		139,200			148,000
Total liabilities and stockholders’ equity	$	596,900		$	639,800

During the year, Ravenna paid a $14,700 cash dividend and it sold a piece of equipment for $7,350 that had originally cost $17,400 and had accumulated depreciation of $11,600. The company did not retire any bonds or repurchase any of its own common stock during the year.

A. 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?

B. What net income would the company include on its statement of cash flows?

C.  How much depreciation would the company add to net income on its statement of cash flows?

D. If the company debited Accounts Receivable and credited Sales for $1,410,000 during the year, what is the total amount of credits recorded in Accounts Receivable during the year?

E. 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?

Answer 1