Ravenna Company is a merchandiser that uses the indirect method to prepare the o
ID: 2498042 • 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 this year is as follows:
During the year, Ravenna paid a $15,000 cash dividend and it sold a piece of equipment for $7,500 that had originally cost $18,000 and had accumulated depreciation of $12,000. The company did not retire any bonds or repurchase any of its own common stock during the year.
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?
What net income would the company include on its statement of cash flows?
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:
Explanation / Answer
1) The Net Decrease in Cash and Cash Equivalents is = $ 26,500
2) The Net Income to be included in the Cash flow statement = $ 6,500
The above figures are shown in the Cash Flow Statement under the Indirect Method as given below:
CASH FLOW STATEMENT-INDIRECT METHOD Cash flow from Operating activities Net Income 6500 Adjustments: Profit on sale of equipment -1500 Depreciation for the year 57000 Decrease in AR -8000 Increase in inventory -12000 Decrease in AP -62000 Decrease in IT payable -24000 -50500 Net cash from operating activities -44000 Cash flow from Investing activities Sale of Equipment 7500 Purchase of Equipment -25000 Net Cash from investing activities -17500 Cash flow from financing activities Cash Dividends -15000 Issue of Bonds 25000 Issue of Common Stock 25000 Net cash from financing activities 35000 Net Decrease in Cash and Cash Equivalents -26500 Opening balance of Cash & Equivalents 156500 Closing balance of Cash & Equivalents 130000Related Questions
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