Question

IKIBAN INC. Comparative Balance Sheets June 30, 2017 and 2016
	2017				2016
Assets
Cash	$	97,900			$	60,000
Accounts receivable, net		89,000				67,000
Inventory		79,800				110,500
Prepaid expenses		6,000				8,600
Total current assets		272,700				246,100
Equipment		140,000				131,000
Accum. depreciation—Equipment		(35,000	)			(17,000	)
Total assets	$	377,700			$	360,100
Liabilities and Equity
Accounts payable	$	41,000			$	54,000
Wages payable		7,600				18,200
Income taxes payable		5,000				7,000
Total current liabilities		53,600				79,200
Notes payable (long term)		46,000				76,000
Total liabilities		99,600				155,200
Equity
Common stock, $5 par value		252,000				176,000
Retained earnings		26,100				28,900
Total liabilities and equity	$	377,700			$	360,100

  

IKIBAN INC. Income Statement For Year Ended June 30, 2017
Sales				$	758,000
Cost of goods sold					427,000
Gross profit					331,000
Operating expenses
Depreciation expense	$	74,600
Other expenses		83,000
Total operating expenses					157,600
					173,400
Other gains (losses)
Gain on sale of equipment					3,600
Income before taxes					177,000
Income taxes expense					45,490
Net income				$	131,510

Additional Information

A $30,000 note payable is retired at its $30,000 carrying (book) value in exchange for cash.

The only changes affecting retained earnings are net income and cash dividends paid.

New equipment is acquired for $73,600 cash.

Received cash for the sale of equipment that had cost $64,600, yielding a $3,600 gain.

Prepaid Expenses and Wages Payable relate to Other Expenses on the income statement.

All purchases and sales of inventory are on credit.

rev: 06_20_2017_QC_CS-91585, 12_05_2017_QC_CS-111198

Required:

(1) Prepare a statement of cash flows for the year ended June 30, 2017, using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

• All working forms part of the answer
• Amounts are in $
• Working on Increase and decrease in balances

Assets	2017	2016	Increase/(decrease)
Cash	97900	60000	37900
Accounts receivable, net	89000	67000	22000
Inventory	79800	110500	-30700
Prepaid expenses	6000	8600	-2600
Total current assets	272700	246100	26600
Equipment	140000	131000	9000
Accum. depreciation—Equipment	-35000	-17000	18000
Total assets	377700	360100	17600
Liabilities and Equity			0
Accounts payable	41000	54000	-13000
Wages payable	7600	18200	-10600
Income taxes payable	5000	7000	-2000
Total current liabilities	53600	79200	-25600
Notes payable (long term)	46000	76000	-30000
Total liabilities	99600	155200	-55600
Equity			0
Common stock, $5 par value	252000	176000	76000
Retained earnings	26100	28900	-2800
Total liabilities and equity	377700	360100	17600

• Income taxes paid in cash = Opening payable balance + Income tax expense – Closing payable balances
  = 7000+45490-5000 = $47490 (deducted in operating activity)
• Accumulated depreciation of the equipment sold = Opening balance + depreciation expense – Closing balance = 17000+74600-35000 = $56600
• Book Value of equipment sold = 64600
  Net Book value after depreciation = 64600 – 56600 = $8000
  Sold at a profit of $3600
  Hence, Cash received on sale = 8000 + 3600 = $11600 (added in investing activity)
• Dividend amount = Opening Retained earnings (RE) balance + Net Income – Closing RE
  = 28900+131510-26100 = $134310 (deducted in financing activity)
• Cash Flow Statement as required, based on above workings

Cash Flow from Operating activities	Amount (In $)	Amount (in $)
Net Income before taxes	177000
Add: Adjusted for
Depreciation	74600
Gain on Sale of equipment	-3600
Add:
Decrease in inventory	30700
Decrease in prepaid expenses	2600
Less:
Increase in accounts receivables	22000
Decrease in accounts payable	13000
Wages payable	10600
Income taxes paid	47490
A. Cash flows from operating activity		188210
Cash Flow from Investing activity
Purchase of Equipment	-73600
Sale of Equipment	11600
B. Cash flow from Investing activities		-62000
Cash flow from Financing activity
Notes payable retired	-30000
Common Stock issued	76000
Dividends	-134310
C. Cash flow from Financing activities		-88310
Net Increase/(decrease) in cash (A+B+C)		37900
Add: Cash in the beginning		60000
Cash at the end (matching with given balance)		$97900