Question

[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 Using the direct method, prepare the statement of cash flows for the year ended June 30, 2017. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Ans- IKIBAN, INC.

Statement of Cash Flows (Direct Method)

For Year Ended June 31,2017

Cash flows from operating activities:-
Net Income		$113,510
Adjustment to reconcile net income to net cash flow from operating activities
Depreciation expenses	65,600
Gain on sale of equipment	-2,700
Increase in accounts receivable (58,000-75,500)	-17,500
Decrease in inventory (97,000-70,800)	26,200
Decrease in prepaid expense (6,800-5,100)	1,700
Decrease in accounts payable (32,000-40,500)	-8,500
Decrease in wages payable (16,400-6,700)	-9,700
Decrease in income tax payable (5,200-4,100)	-1,100
		54,000
Net cash flow from operating activities		167,510
Cash flow from investing activities:
Sale of equipment	10,700
Purchase equipment	-64,600
Net cash used in investing activities		-53,900
Cash flow from financing activities:
Repaid long term notes payable	-30,000
Issue Common stock	67,000
Dividend paid	-98,310
Net cash used in financing activities		-61,310
Net Cash Increase/ (Decrease)		52,300
Add: Beginning cash balance		51,000
Cash balance at the end of year		$103,300

Working Note:

Accumulated depreciation on equipment sold:

Accumulated Depreciation beginning balance	$12,500
Add: Depreciation of current year	$65,600
Subtotal	$78,100
Ending balance of Accumulated Depreciation	$30,500
Depreciation on asset sold	$47,600

Cash received on sale of equipment:-

Cost of equipment sold	$55,600
Less: Accumulated Depreciation	$47,600
Book value of asset sold	$8,000
Profit on sale	$2,700
Cash received on sale of equipment	$10,700

Calculation of dividend paid:-

Beginning balance of retained earnings	$26,200
Add: Net income	$113,510
	$139,710
Less: Ending balance of Retained Earnings	$41,400
Dividend paid in cash	98,310