Question

The following financial statements and additional information are reported. IKIBAN INC. Comparative Balance Sheets June 30, 2019 and 2018 2019 2018 Assets Cash $ 105,700 $ 47,000 Accounts receivable, net 69,500 54,000 Inventory 66,800 91,000 Prepaid expenses 4,700 6,000 Total current assets 246,700 198,000 Equipment 127,000 118,000 Accum. depreciation—Equipment (28,500 ) (10,500 ) Total assets $ 345,200 $ 305,500 Liabilities and Equity Accounts payable $ 28,000 $ 34,500 Wages payable 6,300 15,600 Income taxes payable 3,700 4,400 Total current liabilities 38,000 54,500 Notes payable (long term) 33,000 63,000 Total liabilities 71,000 117,500 Equity Common stock, $5 par value 226,000 163,000 Retained earnings 48,200 25,000 Total liabilities and equity $ 345,200 $ 305,500 IKIBAN INC. Income Statement For Year Ended June 30, 2019 Sales $ 693,000 Cost of goods sold 414,000 Gross profit 279,000 Operating expenses Depreciation expense $ 61,600 Other expenses 70,000 Total operating expenses 131,600 147,400 Other gains (losses) Gain on sale of equipment 2,300 Income before taxes 149,700 Income taxes expense 44,190 Net income $ 105,510 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 $60,600 cash. Received cash for the sale of equipment that had cost $51,600, yielding a $2,300 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.) Compute the company’s cash flow on total assets ratio for its fiscal year 2019.

Additional Information

1. A $44,400 note payable is retired at its $44,400 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 $75,600 cash.
4. Received cash for the sale of equipment that had cost $66,600, yielding a $3,800 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.

Using the direct method, prepare the statement of cash flows for the year ended June 30, 2019. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Some information is not matching from Additional Information,
$3800 gain is given, but in income statement it is $2300, so $2300 considered
$44400 repayment of notes payable, but notes payable reduced by $30000 only, considered difference as issue of notes payable.

Cash Flow Statement
Indirect Method
Cash flow from Operating Activities
Net Income		$       105,510
Adjustments
Depreciation	$        61,600
Gain on Sale of Equipment	$        (2,300)
Change In current assets & Liabilities
Increase in Accounts Receivable	$      (15,500)
Decrease in Inventory	$        24,200
Decrease in Prepaid Expenses	$          1,300
Decrease in Accounts payable	$        (6,500)
Decrease in Wages payable	$        (9,300)
Decrease in Income Tax Payable	$            (700)
Total Adjustments		$         52,800
Net Cash from operating activities			$         158,310

Cash flow from Investing Activities
Sale of Equipment		$         25,300
Purchase of Equipment		$       (75,600)
Net Cash used in investing activities			$         (50,300)
Cash flow from Financing Activities
Issue of Common Stock		$         63,000
Issue of Notes Payable		$         14,400
Paid for long term notes payable		$       (44,400)
Payment of cash dividends		$       (82,310)
Net Cash used in financing activities			$         (49,310)
Net Increase in cash			$           58,700
Cash, beginning of the year			$           47,000
Cash, ending of the year			$         105,700

Cash Flow Statement
Direct Method
Cash flow from Operating Activities
Cash Inflows
Cash Collected from customers		$       677,500
Cash Paid to Suppliers		$     (396,300)
Cash paid for other expenses		$       (78,000)
Cash paid for income tax		$       (44,890)
Net Cash from operating activities			$         158,310
Cash flow from Investing Activities
Sale of Equipment		$         25,300
Purchase of Equipment		$       (75,600)
Net Cash used in investing activities			$         (50,300)
Cash flow from Financing Activities
Issue of Common Stock		$         63,000
Issue of Notes Payable		$         14,400
Paid for long term notes payable		$       (44,400)
Payment of cash dividends		$       (82,310)
Net Cash used in financing activities			$         (49,310)
Net Increase in cash			$           58,700
Cash, beginning of the year			$           47,000
Cash, ending of the year			$         105,700

Cash Flow on Total Assets Ratio = Cash from Operating Activities / Average Total assets
= $158310 / 325350 = 0.49