The statement of cash flows for Georgey Company for 2004 and 2005 is as follows:
$\begin{array}{lrr}
&2004&2005\
\text {Net income}&\$189&\$170\
\text {Adjustments to reconcile net income to net cash provided by operating }\
\text {activities:}\
\text { Depreciation and amortization } & 201 & 173 \
\text { Deferred income taxes } & 14 & (20) \
\text { Restructuring charges } & 80 & 90 \
\text { Accounts receivable } & 30 & 20 \
\text { Inventory } & (30) & 50 \
\text { Current liabilities } & 10 & 30 \
\text { Cash flow from operations } & 494 & 513\\
\text { Sale of equipment } &200&300\
\text { Purchase of equipment } &(130)&(120)\
\text { Cash flow from investing } &70&180\\
\text { Dividends } &(120)&(130)\
\text { Long-term debt } &(440)&(440)\
\text { Cash flow from financing } &(650)&(570)\
\end{array}$

-Which of the following statements is correct?
A)Inventory was a use of cash for Georgey in 2005.
B)Current liabilities increased in 2005.
C)Georgey has a net outflow of cash in 2005.
D)Restructuring charges were a use of cash for Georgey in 2004.

Question

The statement of cash flows for Georgey Company for 2004 and 2005 is as follows:
 $\begin{array}{lrr}
&2004&2005\
  \text {Net income}&\$189&\$170\
  \text {Adjustments to reconcile net income to net cash provided by operating }\
  \text {activities:}\
\text { Depreciation and amortization } & 201 & 173 \
\text { Deferred income taxes } & 14 & (20) \
\text { Restructuring charges } & 80 & 90 \
\text { Accounts receivable } & 30 & 20 \
\text { Inventory } & (30) & 50 \
\text { Current liabilities } & 10 & 30 \
\text { Cash flow from operations } & 494 & 513\\
\text { Sale of equipment } &200&300\
 \text { Purchase of equipment  } &(130)&(120)\
 \text { Cash flow from investing } &70&180\\
 \text { Dividends } &(120)&(130)\
 \text { Long-term debt } &(440)&(440)\
 \text { Cash flow from financing } &(650)&(570)\
\end{array}$

-Which of the following statements is correct?
A)Inventory was a use of cash for Georgey in 2005.
B)Current liabilities increased in 2005.
C)Georgey has a net outflow of cash in 2005.
D)Restructuring charges were a use of cash for Georgey in 2004.

Quizplus · Accepted Answer

Inventory being listed with a positive number in 2005 indicates it was a source of cash, likely due to liquidation or reduction in inventory levels, not a use. Current liabilities increasing (from 10 to 30) means more cash was retained within the company, indicating an inflow or source of cash from operations. The overall cash flow (sum of operations, investing, and financing) for 2005 is positive, indicating a net inflow, not outflow. Restructuring charges, like depreciation, are non-cash expenses added back to net income in the cash flow from operations section, thus not a direct use of cash.

The Statement of Cash Flows for Georgey Company for 2004