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

1. Klaben Motors Inc.

Income Statement

For the year ended December 31, 2016

	$	$
Sales		649,000
Less: Expenses
Cost of Goods Sold	321,000
Rent Expense	25,000
Salaries Expense	151,000
Depreciation Expense	44,000
Income Tax Expense	22,000
Total Expenses		563,000
Net Income		86,000

2. Klaben Motors Inc.

Balance Sheet

December 31, 2016

Assets	$	Liabilities and Stockholders' Equity	$
Cash	288,000	Salaries Payable	1,000
Accounts Receivable	129,800	Accounts Payable	46,800
Inventory	39,000	Total Liabilities	47,800
Total Current Assets	456,800	Common Stock	510,000
Equipment, net	176,000	Retained Earnings	75,000
Total Assets	632,800	Total Liabilities and Stockholders' Equity	632,800

3. Klaben Motors Inc.

Statement of Cash Flows

For the year ended December 31, 2016

	$	$
Cash Flows from Operating Activities
Cash collected from customers	519,200
Cash paid for inventory	(313,200)
Cash paid for salaries	(150,000)
Cash paid for rent	(25,000)
Cash paid for income taxes	(22,000)
Net cash provided by Operating Activities		9,000
Cash Flows from Investing Activities
Cash paid to acquire equipment	(220,000)
Net cash used in Investing Activities		(220,000)
Cash Flows from Financing Activities
Cash received from issuance of common stock	510,000
Cash paid for dividends	(11,000)
Net cash flows from Financing Activities		499,000
Net increase in Cash		$ 288,000
Cash, January 1		$ 0
Cash, December 31		$ 288,000