Question

Using the the cash flow statement shown below: Changes in operating assets and liabilities: Accounts and notes receivable 15.2 (0.7) 61.8Inventories 93.6 46.8 212.8Other current assets (8.7) 5.3 2.5 Accounts payable, accrued expenses, income taxes payable and other 165.0 31.3 193.0How did inventory change during the most recent year? a. Inventory increased by 505 b. Inventory increased by 395 (505-900) c. Cannot be determined from the information provided d. Inventory decreased by 505

Answer 1

Answer: Inventory decreased by 93.6

Step-by-step explanation:

When working with the Cash-flow statement, only increases (decreases) in inventory are subtracted (added) are added to the Cash balance and not the entire inventory amount.

The logic is that, if inventories increased then it means that the company spent cash on increasing inventory which would reduce the cash balance. The reverse is true.

If in the cash flow statement therefore, inventory is added to the cash balance instead of subtracted, it means that inventory decreased by the amount it is being added by.

The cashflow statement here shows an inventory addition of $93.6 so Inventory decreased by $93.6.