Question

Use the following financial statements and additional information.

ONTARIO INC. Comparative Balance Sheets June 30, 2019 and 2018
	2019				2018
Assets
Cash	$	130,800			$	76,900
Accounts receivable, net		68,000				53,000
Inventory		69,000				96,000
Prepaid expenses		5,200				6,500
Total current assets		273,000				232,400
Equipment		160,000				148,000
Accum. depreciation—Equipment		(39,000	)			(13,000	)
Total assets	$	394,000			$	367,400
Liabilities and Equity
Accounts payable	$	33,000			$	40,000
Wages payable		6,000				16,000
Income taxes payable		4,000				4,400
Total current liabilities		43,000				60,400
Notes payable (long term)		43,000				85,000
Total liabilities		86,000				145,400
Equity
Common stock, $5 par value		250,000				180,000
Retained earnings		58,000				42,000
Total liabilities and equity	$	394,000			$	367,400

ONTARIO INC. Income Statement For Year Ended June 30, 2019
Sales				$	835,000
Cost of goods sold					511,000
Gross profit					324,000
Operating expenses
Depreciation expense	$	70,000
Other expenses		81,000
Total operating expenses					151,000
					173,000
Other gains (losses)
Gain on sale of equipment					3,700
Income before taxes					176,700
Income taxes expense					54,090
Net income				$	122,610

Additional Information

1. A $43,000 note payable is retired at its $43,000 carrying (book) value in exchange for cash.
2. The only changes affecting retained earnings are net income and cash dividends paid.
3. New equipment is acquired for $69,000 cash.
4. Received cash for the sale of equipment that had cost $57,000, yielding a $3,700 gain.
5. Prepaid Expenses and Wages Payable relate to Other Expenses on the income statement.
6. All purchases and sales of inventory are on credit.

General Journal tab - Reconstruct the entries to summarize the activity between June 30, 2018 and June 30, 2019.

Direct Method tab - Prepare the Statement of Cash flows for the year ended June 30, 2019 using the direct method.

Indirect Method tab - Prepare the reconciliation to the indirect method.

Answer 1

Cash flow using direct method
Cash inflows
Cash receipt from customers	8,20,000	53000+835000-68000
Cash outflows
Cash paid for Merchandise	4,91,000	(69000+511000-96000)+40000-33000
Paid for expenses	89,700	16000-6000+81000-(6500-5200)
Tax paid	54,490	4400-4000+54090
Net cash by operating acctivities	1,84,810
Cash flow from investing activities
Sale of equipment	16,700	(57000-(13000+70000-39000))+3700
Purchase of equipment	-69,000
Net cash provided	-52,300
Cash flow from financing activity
Payment of Cash dividend	-1,06,610
Common stock issued	70,000	(250000-180000)
Notes payable	-42,000
Net cash by financing activities	-78,610
Net cash increased	53,900
Add: Opening cash	76,900
Closing cash	1,30,800
Cash flow using Indirect method
Net income		122610
Add: Adjustment
Profit on sale of building	-3700
Dpreciation	70000	66300
Change in working capital
Increase in Accounts receivable	-15000
decrease in inventory	27000
Decrease in prepaid expense	1300
Decrease in accounts payable	-7000
Decrease in wages payable	-10000
Decrease in income tax payable	-400	-4100
Net cash by operating acctivities		184810
Cash flow from investing activities
Sale of equipment		16,700
Purchase of equipment		-69,000
Net cash provided		-52,300
Cash flow from financing activity
Payment of Cash dividend		-1,06,610
Common stock issued		70,000
Notes payable		-42,000
Net cash by financing activities		-78,610
Net cash increased		53,900
Add: Opening cash		76,900
Closing cash		1,30,800

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