Question

Exercise 12-11 Indirect: Preparing statement of cash flows LO P1, P2, P3, A1 [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, 2017 and 2016 2017 2016 Assets Cash $ 103,300 $ 51,000 Accounts receivable, net 75,500 58,000 Inventory 70,800 97,000 Prepaid expenses 5,100 6,800 Total current assets 254,700 212,800 Equipment 131,000 122,000 Accum. depreciation—Equipment (30,500 ) (12,500 ) Total assets $ 355,200 $ 322,300 Liabilities and Equity Accounts payable $ 32,000 $ 40,500 Wages payable 6,700 16,400 Income taxes payable 4,100 5,200 Total current liabilities 42,800 62,100 Notes payable (long term) 37,000 67,000 Total liabilities 79,800 129,100 Equity Common stock, $5 par value 234,000 167,000 Retained earnings 41,400 26,200 Total liabilities and equity $ 355,200 $ 322,300 IKIBAN INC. Income Statement For Year Ended June 30, 2017 Sales $ 713,000 Cost of goods sold 418,000 Gross profit 295,000 Operating expenses Depreciation expense $ 65,600 Other expenses 74,000 Total operating expenses 139,600 155,400 Other gains (losses) Gain on sale of equipment 2,700 Income before taxes 158,100 Income taxes expense 44,590 Net income $ 113,510 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 $64,600 cash. Received cash for the sale of equipment that had cost $55,600, yielding a $2,700 gain. Prepaid Expenses and Wages Payable relate to Other Expenses on the income statement. All purchases and sales of inventory are on credit. rev: 12_05_2017_QC_CS-111198 Exercise 12-11 Part 1 Required: (1) Prepare a statement of cash flows for the year ended June 30, 2017, using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Ans- IKIBAN INC

Statement of Cash Flows (Indirect Method)

For the Year Ended June 30, 2017

Cash flows from operating activities:-
Net Income		$113,510
Adjustments to reconcile Net Income to net cash provided by Operating Activities:-
Depreciation Expense	$65,600
Gain on Sale of Plant Assets	-2,700
Increase in Accounts Receivable ($58,000-$75,500)	-17,500
Decrease in Inventory ($97,000-$70,800)	26,200
Decrease in Prepaid Expenses ($6,800-$5,100)	1,700
Decrease in Accounts Payable ($40,500-$32,000)	-8,500
Decrease in Wages Payable ($16,400-$6,700)	-9,700
Decrease in Income Taxes Payable ($5,200-$4,100)	-1,100	54,000
Net Cash Provide by Operating Activities		167,510
Cash Flow From Investing Activities:-
Sale of Equipment	10,700
Purchase of Equipment	-64,600
Net cash used in Investing Activities		-53,900
Cash Flow From Financing Activities:-
Issuance of Stock ($167,000-$234,000)	67,000
Retirement of Notes Payable	-30,000
Dividend Paid	-98,310
Net Cash used in Financing Activities		-61,310
Net Increase (Decrease) in Cash		52,300
Add: Cash Balance at the Beginning of the Year		51,000
Cash Balance at the End of the Year		$103,300

Working Note:-

Ending Retained Earning= Beginning Retained Earning+Net Income-Dividend Paid

$41,400=$26,200+$113,510-Dividend Paid

Dividend paid= $98,310

Depreciation on Equipment Sold= Beginning Accumulated Depreciation + Depreciation Expense-Ending Accumulated Depreciation

=$12,500+$65,600-$30,500

=$47,600

Proceed from Sale of Equipment= Cost of Equipment-Depreciation on Equipment Sold+Gain on equipment

=$55,600-$47,600+$2,700

=$10,700