Question

Required information [The following information applies to the questions displayed below.] The following financial statements and additional information are reported. IKIBAN INC. Comparative Balance Sheets June 30, 2019 and 2018 2019 2018 Assets Cash $ 96,700 $ 62,000 Accounts receivable, net 92,000 69,000 Inventory 81,800 113,500 Prepaid expenses 6,200 9,000 Total current assets 276,700 253,500 Equipment 142,000 133,000 Accum. depreciation—Equipment (36,000 ) (18,000 ) Total assets $ 382,700 $ 368,500 Liabilities and Equity Accounts payable $ 43,000 $ 57,000 Wages payable 7,800 18,600 Income taxes payable 5,200 7,400 Total current liabilities 56,000 83,000 Notes payable (long term) 48,000 78,000 Total liabilities 104,000 161,000 Equity Common stock, $5 par value 256,000 178,000 Retained earnings 22,700 29,500 Total liabilities and equity $ 382,700 $ 368,500 IKIBAN INC. Income Statement For Year Ended June 30, 2019 Sales $ 768,000 Cost of goods sold 429,000 Gross profit 339,000 Operating expenses Depreciation expense $ 76,600 Other expenses 85,000 Total operating expenses 161,600 177,400 Other gains (losses) Gain on sale of equipment 3,800 Income before taxes 181,200 Income taxes expense 45,690 Net income $ 135,510 Additional Information A $30,000 note payable is retired at its $30,000 carrying (book) value in exchange for cash. The only changes affecting retained earnings are net income and cash dividends paid. New equipment is acquired for $75,600 cash. Received cash for the sale of equipment that had cost $66,600, yielding a $3,800 gain. Prepaid Expenses and Wages Payable relate to Other Expenses on the income statement. 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

IKIBAN, INC.
Statement of Cash Flows (Indirect Method)
For the Year Ended June 30, 2019
Cash flow from operating activities:
Net income	$135510
Adjustments to reconcile net income to net cash provided by operating activities
Income statement items not affecting cash
Depreciation expense	76600
Gain on sale of plant assets	-3800
Changes in current operating assets and liabilities
Decrease in inventory (113500-81800)	31700
Decrease in prepaid expenses (9000-6200)	2800
Increase in accounts receivable (92000-69000)	-23000
Decrease in accounts payable (57000-43000)	-14000
Decrease in wages payable (18600-7800)	-10800
Decrease in income taxes payable (7400-5200)	-2200
Net cash provided by operating activities		192810
Cash flows from investing activities:
Sale of equipment	11800
Purchase of equipment	-75600
Net cash used in investing activities		-63800
Cash flows from financing activities:
Issuance of common stock (256000-178000)	78000
Cash paid to retire notes	-30000
Dividends paid	-142310
Net cash used in financing activities		-94310
Net increase (decrease) in cash (192810-63800-94310)		$34700
Cash balance at prior year end		62000
Cash balance at current year end		$96700

Depreciation on the sold equipment= Accumulated depreciation at the beginning of the year+Depreciation expense-Accumulated depreciation at the end of the year

= $18000+76600-36000= $58600

Book value of the equipment at the time of sales= Cost of the sales equipment-Depreciation on the sold equipment

= $66600-58600= $8000

Sales price of the equipment= Book value of the equipment at the time of sales+Gain on sale of equipment

= $8000+3800= $11800

Dividend paid= Retained earnings at the beginning of the year+Net income-Retained earning at the end of the year

= $29500+135510-22700= $142310