Ravenna Company is a merchandiser that uses the indirect method to prepare the o
ID: 2493119 • Letter: R
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 the year is as follows:
Ending
Balance
Beginning
Balance
Cash
$ 48,000
$ 57,000
Accounts receivable
41,000
44,000
Inventory
55,000
50,000
Property, plant & equipment
150,000
140,000
Less accumulated depreciation
<50,000>
<35,000>
Total Assets
$ 244,000
$ 256,000
Accounts payable
$ 32,000
$ 57,000
Income taxes payable
25,000
28,000
Bonds payable
60,000
50,000
Common stock
70,000
60,000
Retained earnings
57,000
61,000
Total liabilities & stockholders’ equity
$ 244,000
$ 256,000
During the year Ravenna paid a $6,000 cash dividend and it sold a piece of equipment for $3,000 that had originally cost $6,000 and had accumulated depreciation of $4,000. The company did not retire any bonds or purchase any of its own common stock during the year.
Prepare the company’s Statement of Cash Flows in good form.
Compute the company’s free cash flow for the year.
Ending
Balance
Beginning
Balance
Cash
$ 48,000
$ 57,000
Accounts receivable
41,000
44,000
Inventory
55,000
50,000
Property, plant & equipment
150,000
140,000
Less accumulated depreciation
<50,000>
<35,000>
Total Assets
$ 244,000
$ 256,000
Accounts payable
$ 32,000
$ 57,000
Income taxes payable
25,000
28,000
Bonds payable
60,000
50,000
Common stock
70,000
60,000
Retained earnings
57,000
61,000
Total liabilities & stockholders’ equity
$ 244,000
$ 256,000
Explanation / Answer
Answer:
FCF=-16000-7000=-23000
Ravenna company Statement of cash Flows Cash Flow from operating activities: Net income 0 Adjustment: Dep expense 15000 Decrease in accounts receivable 3000 Increase in inventory -5000 Decrease in accounts payable -25000 Decrease in income tax payable -3000 Gain on sale of equipment -1000 Net cash flow used in operating activities -16000 Cash flow from investing activities: Sale of equipment 3000 Purchase of equipment -10000 Net cash flow used in investing activites -7000 Cash Flow from financing activities: Issue of bonds 10000 Dividend paid -6000 Issue of common stock 10000 Cash flow from financing activities 14000 Total cash flow from all activities -9000 Add: opening cash 57000 Closing cash 48000Related Questions
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