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	$	52,800		$	62,700
Accounts receivable		45,100			48,400
Inventory		60,500			55,000
Total current assets		158,400			166,100
Property, plant, and equipment		165,000			154,000
Less accumulated depreciation		55,000			38,500
Net property, plant, and equipment		110,000			115,500
Total assets	$	268,400		$	281,600
Accounts payable	$	35,200		$	62,700
Income taxes payable		27,500			30,900
Bonds payable		66,000			55,000
Common stock		77,000			66,000
Retained earnings		62,700			67,000
Total liabilities and stockholders’ equity	$	268,400		$	281,600

During the year, Ravenna paid a $6,600 cash dividend and it sold a piece of equipment for $3,300 that had originally cost $6,600 and had accumulated depreciation of $4,400. The company did not retire any bonds or repurchase any of its own common stock during the year.

11. What is the amount of net cash provided by (used in) operating activities in the company’s statement of cash flows?

Answer 1

Ans.	Particulars	Amount
	Cash flow from operating activities:
	Net income	$2,300
	Adjustments to reconcile Net income to Net cash
	provided by (used for) Operating Activities:
	Add: Depreciation expenses	$20,900
	Less: Gain on sale of plant assets	-$1,100
	Add: Decrease in accounts receivable	$3,300
	Less: Increase in merchandise inventory	-$5,500
	Less: Decrease in accounts payable	-$27,500
	Less: Decrease in income tax payable	-$3,400
	Net cash used by Operating Activities	-$11,000
	*Increase in current liabilities and Decrease in current assets other than cash is added to Net Income.
	*Non cash (depreciation) & Non operating expenses are added to Net income.
	*Non cash & Non operating income (gain on sale of equipment) are deducted from Net income.
	*Working Notes:
	*Calculations for Net income:
	Particulars	Amount
	Ending retained earnings	$62,700
	Add: Cash dividends	$6,600
	Less: Beginning retained earnings	-$67,000
	Net income	$2,300
	*Calculations for Depreciation expenses:
	Accumulated Depreciation Account
	Particulars	Amount	Particulars	Amount
	To PPE	$4,400	By balance b/d (beginning)	$38,500
	To balance c/d (ending)	$55,000	By profit & loss (bal. fig.)	$20,900
		$59,400		$59,400
	*Calculations for Gain on sale of equipment:
	Particulars	Amount	Amount
	Sales value of equipment		$3,300
	Less: Book value of equipment:
	Cost of equipment	$6,600
	Accumulated depreciation	-$4,400
	Book value of equipment		$2,200
	Gain on sale of equipment		$1,100