Ravenna Company is a merchandiser using 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 and cash equivalents $ 89,000 $ 106,750 Accounts receivable 71,500 77,000 Inventory 96,000 87,500 Total current assets 256,500 271,250 Property, plant, and equipment 255,000 245,000 Less accumulated depreciation 85,000 61,250 Net property, plant, and equipment 170,000 183,750 Total assets $ 426,500 $ 455,000 Accounts payable $ 56,000 $ 99,500 Income taxes payable 43,500 57,000 Bonds payable 105,000 87,500 Common stock 122,500 105,000 Retained earnings 99,500 106,000 Total liabilities and stockholders’ equity $ 426,500 $ 455,000 During the year, Ravenna paid a $10,500 cash dividend and sold a piece of equipment for $5,250 that originally cost $12,000 and had accumulated depreciation of $8,000. The company did not retire any bonds or repurchase any of its own common stock during the year. 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?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Ravenna Company is a merchandiser using 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 and cash equivalents	$ 89,000	$ 106,750
Accounts receivable	71,500	77,000
Inventory	96,000	87,500
Total current assets	256,500	271,250
Property, plant, and equipment	255,000	245,000
Less accumulated depreciation	85,000	61,250
Net property, plant, and equipment	170,000	183,750
Total assets	$ 426,500	$ 455,000
Accounts payable	$ 56,000	$ 99,500
Income taxes payable	43,500	57,000
Bonds payable	105,000	87,500
Common stock	122,500	105,000
Retained earnings	99,500	106,000
Total liabilities and stockholders’ equity	$ 426,500	$ 455,000

During the year, Ravenna paid a $10,500 cash dividend and sold a piece of equipment for $5,250 that originally cost $12,000 and had accumulated depreciation of $8,000. The company did not retire any bonds or repurchase any of its own common stock during the year.

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?

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