Question

The following financial statements and additional information are reported.
 

IKIBAN INC. Comparative Balance Sheets June 30, 2019 and 2018
	2019				2018
Assets
Cash	$	79,100			$	58,000
Accounts receivable, net		86,000				65,000
Inventory		77,800				107,500
Prepaid expenses		5,800				8,200
Total current assets		248,700				238,700
Equipment		138,000				129,000
Accum. depreciation—Equipment		(34,000	)			(16,000	)
Total assets	$	352,700			$	351,700
Liabilities and Equity
Accounts payable	$	39,000			$	51,000
Wages payable		7,400				17,800
Income taxes payable		4,800				6,600
Total current liabilities		51,200				75,400
Notes payable (long term)		32,800				74,000
Total liabilities		84,000				149,400
Equity
Common stock, $5 par value		248,000				174,000
Retained earnings		20,700				28,300
Total liabilities and equity	$	352,700			$	351,700

  

IKIBAN INC. Income Statement For Year Ended June 30, 2019
Sales				$	748,000
Cost of goods sold					425,000
Gross profit					323,000
Operating expenses
Depreciation expense	$	72,600
Other expenses		81,000
Total operating expenses					153,600
					169,400
Other gains (losses)
Gain on sale of equipment					3,400
Income before taxes					172,800
Income taxes expense					45,290
Net income				$	127,510

 
Additional Information

1. A $41,200 note payable is retired at its $41,200 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 $71,600 cash.
4. Received cash for the sale of equipment that had cost $62,600, yielding a $3,400 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.

Using the direct method, prepare the statement of cash flows for the year ended June 30, 2019.

Answer 1

IKIBAN, INC.
Statement of Cash Flows (Direct Method)
For Year Ended June 30, 2019
Cash flows from operating activities
Cash received from customers	$727,000
Cash paid for inventory	(407,300)
Cash paid for operating expenses	(89,000)
Cash paid for income taxes	(47,090)
Net cash provided by operating activities		$183,610
Cash flows from investing activities
Cash paid for equipment	(71,600)
Cash received from sale of equipment	11,400
Net cash used in investing activities		(60,200)
Cash flows from financing activities
Cash paid to retire notes	(41,200)
Cash received from stock issuance	74,000
Cash paid for dividends	(135,110)
Net cash used in financing activities		(102,310)
Net increase (decrease) in cash		$21,100
Cash balance at prior year-end		58,000
Cash balance at current year-end		$79,100

 

 

Sales	$	748,000
Less increase in accounts receivable		(21,000	)
Cash received from customers	$	727,000

 

 

Cost of goods sold	$	425,000
Less decrease in inventory		(29,700	)
Purchases		395,300
Plus decrease in accounts payable		12,000
Cash paid for inventory	$	407,300

 

 

Other operating expenses	$	81,000
Plus decrease in wages payable		10,400
Less decrease in prepaid expenses		(2,400	)
Cash paid for other operating expenses	$	89,000

 

 

Income taxes expense	$	45,290
Plus decrease in income taxes payable		1,800
Cash paid for income taxes	$	47,090

 

 

Cost of equipment sold (given)	$	62,600
Accumulated depreciation of equipment sold*		(54,600	)
Book value of equipment sold	$	8,000
Gain on sale of equipment		3,400
Cash receipt from sale of equipment	$	11,400

 

 

Cost of equipment sold (given)	$	62,600
Plus net increase in the equipment account balance		9,000
Cash paid for new equipment (given)	$	71,600

 

 

Equipment
Bal.,  6/30/2018	129,000
Purchase	71,600	Sale	62,600
Bal., 6/30/2019	138,000

 

 

 

Accumulated Depreciation, Equipment
		Bal., 6/30/2018	16,000
Sale*	54,600	Depr. Expense	72,600
		Bal., 6/30/2019	34,000

 

 

 

Carrying value of notes retired	$	41,200
Cash payment to retire notes	$	41,200

 

 

Retained Earnings
		Bal., 6/30/2018	28,300
Dividends (plug)	135,110	Net income	127,510
		Bal., 6/30/2019	20,700

Cash balance at the end of the current  year = $79,100