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 $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 repurchase any of its own common stock during the year.

1. (To help answer this question, create T-accounts for Inventory and Accounts Payable and insert their beginning and ending balances.) If the company debited Cost of Goods Sold and credited Inventory for $400,000 during the year, what is the total amount of inventory purchases recorded on the debit side of the Inventory T-account and the credit side of the Accounts Payable T-account? What is the total amount of the debits recorded in the Accounts Payable T-account during the year? What does the amount of these debits represent?

2. 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? What does this amount represent?

Ending Balance BegInning Balance Cash Accounts recelvable Inventory Total current assets Property, plant, and equlpment $ 48,000 41,000 55,000 144,000 150,000 50,000 100,000 $244,000 57,000 44,000 50,000 151,000 140,000 35,000 105,000 $256,000 Less accumulated depreclation Net property, plant, and equipment Total assets 32,000 25,000 60,000 70,000 57,000 $244,000 $57,000 28,000 50,000 60,000 61,000 $256,000 Accounts payable Income taxes payable Bonds paryable Common stock Retalned earnings Total llabltiles and stockholders' equity