Question

The following financial statements and additional information are reported. IKIBAN INC. Comparative Balance Sheets June 30, 2017 and 2016 2017 2016 Assets Cash $ 97,300 $ 61,000 Accounts receivable, net 90,500 68,000 Inventory 80,800 112,000 Prepaid expenses 6,100 8,800 Total current assets 274,700 249,800 Equipment 141,000 132,000 Accum. depreciation—Equipment (35,500 ) (17,500 ) Total assets $ 380,200 $ 364,300 Liabilities and Equity Accounts payable $ 42,000 $ 55,500 Wages payable 7,700 18,400 Income taxes payable 5,100 7,200 Total current liabilities 54,800 81,100 Notes payable (long term) 47,000 77,000 Total liabilities 101,800 158,100 Equity Common stock, $5 par value 254,000 177,000 Retained earnings 24,400 29,200 Total liabilities and equity $ 380,200 $ 364,300 IKIBAN INC. Income Statement For Year Ended June 30, 2017 Sales $ 763,000 Cost of goods sold 428,000 Gross profit 335,000 Operating expenses Depreciation expense $ 75,600 Other expenses 84,000 Total operating expenses 159,600 175,400 Other gains (losses) Gain on sale of equipment 3,700 Income before taxes 179,100 Income taxes expense 45,590 Net income $ 133,510 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 $74,600 cash. Received cash for the sale of equipment that had cost $65,600, yielding a $3,700 gain. Prepaid Expenses and Wages Payable relate to Other Expenses on the income statement. All purchases and sales of inventory are on credit.

a.Prepare a statement of cash flows for the year ended June 30, 2017, using the indirect method

b.Compute the company's cash flow on total assets ratio for its fiscal year 2017.

c.Using the direct method, prepare the statement of cash flows for the year ended June 30, 2017

Answer 1

Cash flow statement IKIBAN Inc for the year ended June 30, 2017 under indirect method

Particulars	amount
A Cash flow from operating activities
Net income (before tax)	179100
Adjustments for :
Depriciation	75600
Gain on sale of equipment	(3700)
(Increase) or Decrease in Current assets :
Increase in Accounts receivable	(22500)
Decrease in inventory	31200
Decrease in prepaid exp.	2700
Increase or (decrease) in current assets :
Decrease in accounts payable	(13500)
Decrease in Wages payable	(10700)
Cash generated from operating activities	238200
Less : income tax paid (wn 4)	(47690)
Cash from operating activities (A)	190510
B. Cash flow from investing activities
Purchase of equipment	(74600)
Proceeds from sale of equipment (wn 2)	11700
Cash used in investing activities (B)	(62900)
C. Cash flow from financing activities
Proceeds from issue of common stock	77000
Notes payable redeemed	(30000)
Dividend paid (wn3)	(138310)
Cash used in financing activities (C)	(91310)
Net increase or decrease in cash (A+B+C)	36300
Opening Cash balance	61000
Ending Cash balance	97300

Notes :-

1. Accumulated depreciation a/c

Particulats	debit	particulars	credit
		By Bal b/d	17500
To equipment (bal. Fig.)	57600	By depriciation	75600
To bal c/d	35500

2 Equipment a/c

Particulars	debit	particulars	credit
To bal b/d	132000	by accumulated dep.	57600
To cash	74600	by cash (bal fig)	11700
To gain on sale of equipment	3700	By bal c/d	141000

3 . Retained earning

Particulars	debit	particulars	credit
To dividend (Bal fig)	138310	By bal b/d	29200
		By net income	133510
To Bal c/d	24400

4 . Income tax payable

Particulars	debit	particulars	credit
To cash (bal fig)	47690	By bal b/d	7200
		By income tax	45590
To bal c/d	5100

Company cash flow to total assets ratio = cash flow from operations/average total assets

Cash flow from operation of the company =190510

Average assets = 380200+364300/2=372250

Cash flow to asset = 190510/372250=0.51.

c . Cash flow from direct method for year ended June 30, 2017

Cash flow from operating activities	amount
Cash collected from customers (wn1)	740500
Cash paid to supplier (wn2)	(410300)
Cash paid for other expenses (wn3)	(92000)
Cash generated from operating activities	238200
Less : income tax paid	(47690)
Cash from operating activities (A)	190510
B .Cash flow from investing acrivities
Purchase of equipment	(74600)
Proceeds from sale of equipment	11700
Cash used in investing activities (B)	(62900)
C Cash flow from financing activities
Proceeds from issue of common stock	77000
Note payable redeemed	(30000)
Dividend paid	(138310)
Cash used in financing activities (C)	(91310)
Net Cash increase (A+B+C)	36300
+ Beginning Cash balance	61000
Ending Cash balance	97300

Working note :-

1 . Accounts receivable

I

Particulars	debit	particulars	credit
To Bal b/d	68000	by cash	740500
To sales	763000	by bal c/d	90500

2 . COGS = purchases + beginning inventory - ending inventory

428000=pur.+112000-80800

Purchases =396800

Accounts payable

Particulars	debit	particulars	credit
To cash	410300	By Bal b/d	55500
		By purchases	396800
To bal c/d	42000

3. Calculation Other exp. Paid in cash

Other expenses 84000

+ Beginning wages payable 18400

- closing wages payable. 7700

+ Closing prepaid exp. 6100

- beginning prepaid exp . 8800

Cash paid . 92000