Question

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.

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.)

IKIBAN, INC. Statement of Cash Flows (Indirect Method) For Year Ended June 30, 2017 Cash flows from operating activities Adjustments to reconcile net income to net cash provided by operating activities Income statement items not affecting cash Changes in current operating assets and liabilities $0 Cash flows from investing activities 0 Cash flows from financing activities 0 Net increase (decrease) in cash $0 Cash balance at prior year-end Cash balance at current year-end $0

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

	Cash Flow on Total Assets Ratio Choose Numerator: / Choose Denominator: = Cash Flow on Total Assets Ratio / = Cash flow on total assets ratio / = 0

Answer 1

IKIBAN, INC.
Statement of Cash Flows (Indirect Method)
For 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
Income statement items not affecting cash
Depreciation expense	65,600
Gain on sale of plant assets	-2,700
Changes in current operating assets and liabilities
Increase in accounts receivable(58000-75500)	-17,500
Decrease in inventory(97000-70800)	26,200
Decrease in prepaid expenses(6800-5100)	1,700
Decrease in accounts payable (40500-32000)	-8,500
Decrease in wages payable(6700-16400)	-9,700
Decrease in income taxes payable(4100-5200)	-1100
		54,000
Net cash provided by operating activities		167,510
Cash flows from investing activities
Cash received from sale of equipment (W.N-1)	10,700
Cash paid for equipment	-64,600
Net cash used in investing activities		-53,900
Cash flows from financing activities
Cash received from stock issuance (234000-167000)	67,000
Cash paid to retire notes	-30,000
Cash paid for dividends (26200+113510-41400)	-98,310
Net cash used in financing activities		-61310
Net increase (decrease) in cash		52,300
Cash balance at prior year-end		51,000
Cash balance at current year-end		103,300

Working notes for the above answer is as under

(1)	Cost of equipment sold (Given)	$ 55,600
	Accumulated depreciation of equipment sold*	(47,600)
	Book value of equipment sold	8,000
	Gain on sale of equipment (Given)	2,700
	Cash receipt from sale of equipment	$ 10,700

Accumulated Depreciation, Equipment
	Bal., 6/30/2016	12,500
Sale (plug)     *47,600	Depr. Expense	65,600
	Bal., 6/30/2017	30,500

____________________________________________________________________________

(2)

Cash Flow on Total Assets Ratio
Choose Numerator:	/	Choose Denominator:	=	Cash Flow on Total Assets Ratio
Operatin cash flow	/	Average total Assets	=	Cash flow on total assets ratio
167,510	/	338750	=	49.45%

Average total Assets

=(355200+322300) /2

=338750