Question

Required information

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The following financial statements and additional information are reported.

IKIBAN INC. Comparative Balance Sheets June 30, 2019 and 2018
	2019				2018
Assets
Cash	$	97,300			$	61,000
Accounts receivable, net		90,500				68,000
Inventory		80,800				112,000
Prepaid expenses		6,100				8,800
Total current assets		274,700				249,800
Equipment		141,000				132,000
Accum. depreciation—Equipment		(35,500	)			(17,500	)
Total assets	$	380,200			$	364,300
Liabilities and Equity
Accounts payable	$	42,000			$	55,500
Wages payable		7,700				18,400
Income taxes payable		5,100				7,200
Total current liabilities		54,800				81,100
Notes payable (long term)		47,000				77,000
Total liabilities		101,800				158,100
Equity
Common stock, $5 par value		254,000				177,000
Retained earnings		24,400				29,200
Total liabilities and equity	$	380,200			$	364,300

  

IKIBAN INC. Income Statement For Year Ended June 30, 2019
Sales				$	763,000
Cost of goods sold					428,000
Gross profit					335,000
Operating expenses
Depreciation expense	$	75,600
Other expenses		84,000
Total operating expenses					159,600
					175,400
Other gains (losses)
Gain on sale of equipment					3,700
Income before taxes					179,100
Income taxes expense					45,590
Net income				$	133,510

Additional Information

1. A $30,000 note payable is retired at its $30,000 carrying (book) value in exchange for cash.
2. The only changes affecting retained earnings are net income and cash dividends paid.
3. New equipment is acquired for $74,600 cash.
4. Received cash for the sale of equipment that had cost $65,600, yielding a $3,700 gain.
5. Prepaid Expenses and Wages Payable relate to Other Expenses on the income statement.
6. All purchases and sales of inventory are on credit.

Required:

(1) Prepare a statement of cash flows using the indirect method for the year ended June 30, 2019. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Solution

IKIBAN INC.
Statement of Cash Flows
For the Year ended June 30th 2019
A. Cash Flows from Operating Activity
Net Income		$   1,33,510.00
Adjustments to reconcile net income to net cash flows from Operating Activities
Income statement items not affecting cash
Depreciation expense	$           75,600.00
Gain on sale of Equipment	$           (3,700.00)
Changes In Current Operating Assets Liabilities
Increase in Accounts Receivable	$        (22,500.00)
Decrease in Inventory	$           31,200.00
Decrease in Prepaid Expenses	$             2,700.00
Decrease in Accounts Payable	$        (13,500.00)
Decrease in Wages Payable	$        (10,700.00)
Decrease in Income taxes payable	$           (2,100.00)
		$      57,000.00
Net cash flow from Operating activities		$   1,90,510.00
B. Cash flows from Investing Activities
Cash paid for Equipment	$        (74,600.00)
Cash received from Sale Of Equipment	$           11,700.00
Net Cash Used in Investing activities		$    (62,900.00)
C. Cash Flows from Financing activities
Cash paid to retire notes	$        (30,000.00)
Cash received from stock issuance	$           77,000.00
Cash paid for Dividends	$     (1,38,310.00)
Cash flows from Financing activities		$    (91,310.00)
Net Increase (Decrease) in Cash [A+B+C]		$      36,300.00
Cash balance at prior Year-end		$      61,000.00
Cash balance at Current Year-end		$      97,300.00

Working

Accumulated depreciation on equipment sold
Accumulated Depreciation beginning balance	$       17,500.00
Add: Depreciation of current year	$       75,600.00
Subtotal	$       93,100.00
Ending balance of Accumulated depreciation	$       35,500.00
Depreciation on asset sold	$    (57,600.00)

.

Cash received on sale of Equipment
Cost of equipment sold	$       65,600.00
Less: Accumulated depreciation	$    (57,600.00)
Book value of asset sold	$         8,000.00
Profit on sale	$         3,700.00
Cash received on sale of equipment	$       11,700.00

.

Calculation of dividend paid
Beginning balance of retained earnings	$       29,200.00
Add: Net income	$   1,33,510.00
	$   1,62,710.00
Less: Ending balance of Retained earnings	$       24,400.00
Dividends paid in cash	$   1,38,310.00