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Klaben Motors Inc., was formed on January 1, 2016. The following transactions occurred during 2016: On...

Klaben Motors Inc., was formed on January 1, 2016. The following transactions occurred during 2016: On January 1, 2016, Klaben issued its common stock for $510,000. Early in January, Klaben made the following payments: a. $220,000 for equipment b. $243,000 for inventory (9 cars @ $27,000 each) c. $25,000 for 2016 rent on a store building. In February, Klaben purchased 3 cars for inventory on account. Cost for this inventory was $117,000 ($39,000 each). Before year-end, Klaben paid $70,200 of this debt. The company uses the first-in, first-out (FIFO) method to account for inventory. During 2016, Klaben sold 11 autos for a total of $649,000. Before year-end, it had collected 80% of this amount. The business employs 2 people. The combined annual payroll is $151,000, of which Klaben owes $1,000 at year-end. At the end of the year, Klaben paid income tax of $22,000. Late in 2016, Klaben declared and paid cash dividends of $11,000. For equipment, Klaben uses the straight-line depreciation method, over five years, with residual value. Requirements: 1. Prepare Klaben’s income statement for the year ended December 31, 2016. Use the single-step format, with all the revenues listed together and all expenses listed together. 2. Prepare Klaben’s balance sheet at December 31, 2016. 3. Prepare Klaben’s statement of cash flows for the year ended December 31, 2016. Format cash flows from operating activities by using the direct method.

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Expert Solution

Klaben Motor Inc.,Income statement for the year ended December 2016.

Particulars Note No Amount(in$)
Revenue
Sales 6,49,000
Less: Expenses
Cost of goods sold 1 3,21,000
Rent on store building 25,000
Salary to business employees 1,51,000
Depreciation on equipment 2 43,000
  Total Expense 5,40,000
Income tax expense 22,000
  Net Income 87,000

Note No:

1.Cost of goods sold (FIFO Method):

Particulars Quantity Value
Opening stock NIl Nil
Purchases
Early in January 9 9*$27000=$2,43,000
Second Purchase 3 3*$39000=$1,17,000
Cost of goods Sold (FIFO)
From First Purchase 9 $2,43,000
Second Purchase 2 2*$39000=$78,000
Total CGS $3,21,000

2. Depreciation on SLM basis:

Cost of equipment=$2,20,000

     Useful life=5

Residual value=$5000 ( Residual value not given assumed $5000)

Depreciation= Cost of equipment-Residual value   = 2,20,000-5000 = $43,000

                                 Useful life                                               5

Balance sheet of Klaben Inc. as on 31st December 2016

Liabilities Amount(in$) Assets Amount (in $)
STOCK HOLDERS EQUITY Property, Plant and Equipment
Common Stock 5,10,000 Plant and Machinery 1,77,000
Retained earnings(87000-11000) 76000 Current Assets
Liabilities Inventory 39,000
Sundry Creditors(37800+1000) 47,800 Sundry debtors 1,29,800
Cash 2,88,000
Total 6,33,800 Total 6,33,800

Note:

1. Cash balance:

Particulars Amount(in$)
Common stock proceeds 5,10,000
Add: Receipts
Sale Proceeds ($649000*80/100) 5,19,200
Less: Payments
Purchase of equipment 220000
Inventory 243000
Rent of store 25000
Payment to creditors 70200
Payment of salaries 150000
Income tax payment 22000
Dividend payment 11000
Closing cash balance 288000

Cash flow statement for the year ended 31 st December 2016

Particulars Amount(in $)
Cash flows from Operating activity
Cash received from customers 519200
Cash paid to suppliers 338200
Cash paid to employees 150000
Cash paid to income tax 22000
Net cash Provided from operating activity 9000
Cash flows from Investing activity
Purchase of Plant,property and equipment 220000
Net cash used In investing activity (220000)
Cash flows from financing activity
Proceeds from common stock 510000
Dividend paid to common stakeholders   11000
Net cash provided from financing activity 499000
Net increase/(decrease) in cash balance 2,88,000

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