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The following financial statements and additional information are reported. IKIBAN INC. Comparative Balance Sheets June 30,...

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.

Solutions

Expert Solution

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

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