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In: Accounting

Kingbird Company, a major retailer of bicycles and accessories, operates several stores and is a publicly...

Kingbird Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company. The comparative balance sheet and income statement for Kingbird as of May 31, 2017, are as follows. The company is preparing its statement of cash flows.

KINGBIRD COMPANY
COMPARATIVE BALANCE SHEET
AS OF MAY 31

2017

2016

Current assets
   Cash

$28,100

$20,000

   Accounts receivable

75,000

58,300

   Inventory

220,600

247,900

   Prepaid expenses

9,100

7,000

     Total current assets

332,800

333,200

Plant assets
   Plant assets

601,900

506,700

   Less: Accumulated depreciation—plant assets

150,600

124,800

     Net plant assets

451,300

381,900

Total assets

$784,100

$715,100

Current liabilities
   Accounts payable

$123,400

$113,800

   Salaries and wages payable

47,600

71,900

   Interest payable

26,900

25,100

     Total current liabilities

197,900

210,800

Long-term debt
   Bonds payable

70,000

100,000

     Total liabilities

267,900

310,800

Stockholders’ equity
   Common stock, $10 par

370,000

280,000

   Retained earnings

146,200

124,300

     Total stockholders’ equity

516,200

404,300

Total liabilities and stockholders’ equity

$784,100

$715,100

KINGBIRD COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED MAY 31, 2017

Sales revenue

$1,253,000

Cost of goods sold

717,300

   Gross profit

535,700

Expenses
   Salaries and wages expense

252,500

   Interest expense

74,600

   Depreciation expense

25,800

   Other expenses

8,100

     Total expenses

361,000

Operating income

174,700

   Income tax expense

43,000

Net income

$131,700


The following is additional information concerning Kingbird’s transactions during the year ended May 31, 2017.

1. All sales during the year were made on account.
2. All merchandise was purchased on account, comprising the total accounts payable account.
3. Plant assets costing $95,200 were purchased by paying $25,200 in cash and issuing 7,000 shares of stock.
4. The “other expenses” are related to prepaid items.
5. All income taxes incurred during the year were paid during the year.
6. In order to supplement its cash, Kingbird issued 2,000 shares of common stock at par value.
7.

Cash dividends of $109,800 were declared and paid at the end of the fiscal year.

Prepare a statement of cash flows for Kingbird Company for the year ended May 31, 2017, using the direct method. (A reconciliation of net income to net cash provided is not required.)

Solutions

Expert Solution

Below is the cashflow as per Direct Method. the workings for each of the figures is given below

Particulars

Amount

Amount

Cashflow from Operating Activities

Cash Receipts from Customers

1236300

Cash paid to suppliers

-680400

Prepaid expenses paid

-10200

Cash paid to Employees

-276800

Taxes paid

-43000

Interest Paid

-72800

Net Cash from Operating Activities

153100

Cashflow from Investing Activities

Purchase of Plant

-25200

Net Cash from Investing Activties

-25200

Cashflow from Financing Activities

Bonds repaid

-30000

Proceeds from Issue of Shares

20000

Dividend Paid

-109800

Net Cash from Financing Activities

-119800

Net increase in cash and cash equivalents

8100

Cash and cash equivalents at beginning of period

20000

Cash and cash equivalents at end of period

28100

Workings:

Opening Balance of Accounts Receivable (A)

58300

Opening Balance for Stock

247900

Sales Revenue (B)

1253000

Closing Stock

220600

Closing Balance of Accounts Rceivable ( C)

75000

COGS

717300

Cash Receipts from Customers (A+B-C)

1236300

Purchases

690000

Opening Balance of Accounts Payable

113800

Opening prepaid

7000

Purchases

690000

Expenses

8100

Closing Balance of Accounts Payable

123400

Closing

9100

Cash paid to suppliers

680400

Prepaid expenses paid

10200

Opening Balance of Salaries and Wages Payable

71900

Opening Balance of Interest Payable

25100

Expense

252500

Expense

74600

Closing Balance of Salaries and Wages Payable

47600

Closing Balance of Interest Payable

26900

Cash paid to Employees

276800

Cash paid to Employees

72800

Opening Balance of Equity

280000

Opening Balance Retained Earnings

124300

Shares issued for Plant

70000

Profit Earned

131700

Shares issued for Cash

20000

Dividend paid

109800

Closing Balance of Equity

370000

Closing Balance Retained Earnings

146200


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