Question

Exercise 12-11 Indirect: Preparing statement of cash flows LO P1, P2, P3, A1

 

The following financial statements and additional information are reported.

IKIBAN INC. Comparative Balance Sheets June 30, 2017 and 2016
	2017				2016
Assets
Cash	$	87,500			$	44,000
Accounts receivable, net		65,000				51,000
Inventory		63,800				86,500
Prepaid expenses		4,400				5,400
Total current assets		220,700				186,900
Equipment		124,000				115,000
Accum. depreciation—Equipment		(27,000	)			(9,000	)
Total assets	$	317,700			$	292,900
Liabilities and Equity
Accounts payable	$	25,000			$	30,000
Wages payable		6,000				15,000
Income taxes payable		3,400				3,800
Total current liabilities		34,400				48,800
Notes payable (long term)		30,000				60,000
Total liabilities		64,400				108,800
Equity
Common stock, $5 par value		220,000				160,000
Retained earnings		33,300				24,100
Total liabilities and equity	$	317,700			$	292,900

  

IKIBAN INC. Income Statement For Year Ended June 30, 2017
Sales				$	678,000
Cost of goods sold					411,000
Gross profit					267,000
Operating expenses
Depreciation expense	$	58,600
Other expenses		67,000
Total operating expenses					125,600
					141,400
Other gains (losses)
Gain on sale of equipment					2,000
Income before taxes					143,400
Income taxes expense					43,890
Net income				$	99,510

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 $57,600 cash.
4. Received cash for the sale of equipment that had cost $48,600, yielding a $2,000 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.

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.)

Exercise 12-11 Part 2

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

Answer 1

Answer-1)-

IKIBAN INC.
STATEMENT OF CASH FLOWS (USING INDIRECT METHOD)
FOR THE YEAR ENDED 30 JUNE,2017
Particulars		Amount
		$
Cash flow from operating activities
Net Income		99510
Adjustments to reconcile net income to net cash provided by operating activities
Adjustment for non cash effects
Depreciation		58600
Gain on sale of equipment		-2000
Change in operating assets & liabilities
Increase in accounts receivable		-14000
Decrease in inventory		22700
Decrease in prepaid expenses		1000
Decrease in accounts payable		-5000
Decrease in wages payable		-9000
Decrease in income taxes payable		-400
Net cash flow from operating activities (a)		151410
Cash Flow from Investing activities
New equipment purchased		-57600
Equipment sold		10000
Net cash Flow from Investing activities (b)		-47600
Cash Flow from Financing activities
Cash dividends paid	($24100+$99510-$33300)	-90310
Common stock issued		60000
Notes payable paid		-30000
Net cash Flow from Financing activities (c)		-60310
Net Change in cash c=a+b+c		43500
Beginning cash balance		44000
Closing cash balance		87500

2)- The company's cash flow on total assets ratio for its fiscal year 2017 = 49.59%.

Explanation- Cash flow on total assets ratio = (Cash flow from operating activities/Average total assets)*100

= {$151410/($292900+$317700)/2}*100

= ($151410/$305300)*100

= 49.59%