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	$	121,800		$	146,550
Accounts receivable		95,900			103,400
Inventory		128,800			117,500
Total current assets		346,500			367,450
Property, plant, and equipment		339,000			329,000
Less accumulated depreciation		113,000			82,250
Net property, plant, and equipment		226,000			246,750
Total assets	$	572,500		$	614,200
Accounts payable	$	75,200		$	133,500
Income taxes payable		58,300			80,200
Bonds payable		141,000			117,500
Common stock		164,500			141,000
Retained earnings		133,500			142,000
Total liabilities and stockholders’ equity	$	572,500		$	614,200

During the year, Ravenna paid a $14,100 cash dividend and it sold a piece of equipment for $7,050 that had originally cost $16,800 and had accumulated depreciation of $11,200. The company did not retire any bonds or repurchase any of its own common stock during the year.

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?

9-a. What is the amount and direction (+ or ?) of the income taxes payable adjustment to net income in the operating activities section of the statement of cash flows?

Answer 1

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?

Combined amount                   = ($69,600)

Direction (+ or ?)           = - Sign

Less : Increase in Inventory ($1,28,800 - $1,17,500)	($11,300)
Less : Increase Accounts payable      ($1,33,500 - $75,200)	($58,300)
TOTAL	($69,600)

                            

9-a. What is the amount and direction (+ or ?) of the income taxes payable adjustment to net income in the operating activities section of the statement of cash flows?

The amount of Income Tax Paid should be deducted from the net income in the operating activities section of the statement of cash flows.

Income Tax Paid            = $21,900

($80,200 - $58,300)

Direction (+ or ?)           = - Sign