Question

The following financial statements and additional information are reported.

IKIBAN INC. Comparative Balance Sheets June 30, 2019 and 2018
	2019				2018
Assets
Cash	$	99,700			$	57,000
Accounts receivable, net		84,500				64,000
Inventory		76,800				106,000
Prepaid expenses		5,700				8,000
Total current assets		266,700				235,000
Equipment		137,000				128,000
Accum. depreciation—Equipment		(33,500	)			(15,500	)
Total assets	$	370,200			$	347,500
Liabilities and Equity
Accounts payable	$	38,000			$	49,500
Wages payable		7,300				17,600
Income taxes payable		4,700				6,400
Total current liabilities		50,000				73,500
Notes payable (long term)		43,000				73,000
Total liabilities		93,000				146,500
Equity
Common stock, $5 par value		246,000				173,000
Retained earnings		31,200				28,000
Total liabilities and equity	$	370,200			$	347,500

  

IKIBAN INC. Income Statement For Year Ended June 30, 2019
Sales				$	743,000
Cost of goods sold					424,000
Gross profit					319,000
Operating expenses
Depreciation expense	$	71,600
Other expenses		80,000
Total operating expenses					151,600
					167,400
Other gains (losses)
Gain on sale of equipment					3,300
Income before taxes					170,700
Income taxes expense					45,190
Net income				$	125,510

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 $70,600 cash.
4. Received cash for the sale of equipment that had cost $61,600, yielding a $3,300 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.

Answer 1

ANSWER:

IKIBAN, INC.
Statement of Cash Flows (Indirect Method)
For Year Ended June 30,2019
Cash flows from operating activities:
Net income		$125,510
Adjustments to reconcile net income to net cash provided by Operating activities
Income statement items not affecting cash
Depreciation expense	$71,600
Gain on sale of equipment	($3,300)
Changes in current operating assets and liabilities:
Increase in accounts receivable	($20,500)
Decrease in inventory	$29,200
Decrease in prepaid expenses	$2,300
Decrease in Accounts payable	($11,500)
Decrease in wages payable	($10,300)
Decrease in income taxes payable	($1,700)	$55,800
Net cash provided (used) by operating activities (i)		$181,310
Cash flows from investing activities:
Purchase of equipment	($70,600)
Sale of equipment	$11,300
Net cash provided (used) by investing activities (ii)		($59,300)
Cash flows from financing activities:
Retiremet of notes payable	($30,000)
Payment of cash dividends	($122,310)
Issuance of common stock	$73,000
Net cash provided (used) by financing activities (iii)		($79,310)
Net increase (decrease) in cash (i)+(ii)+(iii)		$42,700
Cash balance, Dec 31,2018		$57,000
Cash balance, Dec 31,2019		$99,700

Calculations:

i.Cash received on sale of equipment:

Accum. depreciation—Equipment, Beginning	$15,500
Depreciation expense	$71,600
Accum. depreciation—Equipment, Ending	($33,500)
Accum. Depreciation on Sold equipment	$53,600
Cost of sold equipment	$61,600
Accum. Depreciation on Sold equipment	($53,600)
Book value of sold equipment	$8,000
Add: Gain on sale	$3,300
Cash received on sale of equipment	$11,300

ii.Dividends paid:

Retained earnings, beginning	$28,000
Net income	$125,510
Retained earnings, ending	($31,200)
Dividends paid	$122,310