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 indirect method.

Answer 1

Klaben Motors Inc
Income Statement
For year ended 31st December 2016
Sales		649000
Less:Cost of goods Sold
Purchases	360000
Less:Closing Inventory ( 1 Unsold motor cycle costing 39000 using FIFO)	39000	321000
Gross Profit		328000
Selling and Administrative Expenses
Rent	25000
Salary	151000
Depreciation	44000
Total Expenses		220000
Profit Before Taxes		108000
Taxes Paid		22000
Profit After Tax		86000

Klaben Motors Inc
Balance Sheet
For year ended 31st December 2016
Assets
Cash		288000
Equipment	220000
Less:Depreciation	44000	176000
Inventory		39000
Accounts Receivables		129800
Total Assets		632800
Liabilities
Accounts Payable		46800
Accrued Expenses		1000
Common Stock		510000
Retained Earnings	86000
Less-Dividends	11000	75000
Total Liabilities		632800

Klaben Motors Inc
Cash Flow Statement
For year ended 31st December 2016
A. Cash Flows from Operating Activity
Net Income		$             86,000.00
Adjustments
Depreciation expense	$           44,000.00
Increase in Accounts receivables	$      (129,800.00)
Increase in Accounts payables	$           46,800.00
Increase in Inventory	$        (39,000.00)
Increase In accrued Expenses	$             1,000.00
		$          (77,000.00)
Net cash flow from Operating activities		$               9,000.00
B. Cash flows from Investing Activities
Purchase of equipments	$      (220,000.00)
Net Cash flows from Investing activities		$        (220,000.00)
C. Cash Flows from Financing activities
Issuance of Common Stock	$        510,000.00
payments of dividends	$        (11,000.00)
Cash flows from Financing activities		$          499,000.00
Net Increase (Decrease) in Cash [A+B+C]		$          288,000.00
Cash at the beginning		$                            -
Cash at the end		$          288,000.00

Working Notes

Calculation of Accounts Payable
Purchase on Account	117000
Cash Paid in Year	70200
Payable	46800
Calculation of Accounts Receivables
Sales	649000
Cash Collected in year	519200
Receivables	129800