Question

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.

Answer 1

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