Question

Exercise 16-11 Indirect: Preparing statement of cash flows LO P1, P2, P3, A1

[The following information applies to the questions displayed below.]

The following financial statements and additional information are reported.

IKIBAN INC. Comparative Balance Sheets June 30, 2017 and 2016
	2017				2016
Assets
Cash	$	86,300			$	46,000
Accounts receivable, net		68,000				53,000
Inventory		65,800				89,500
Prepaid expenses		4,600				5,800
Total current assets		224,700				194,300
Equipment		126,000				117,000
Accum. depreciation—Equipment		(28,000	)			(10,000	)
Total assets	$	322,700			$	301,300
Liabilities and Equity
Accounts payable	$	27,000			$	33,000
Wages payable		6,200				15,400
Income taxes payable		3,600				4,200
Total current liabilities		36,800				52,600
Notes payable (long term)		32,000				62,000
Total liabilities		68,800				114,600
Equity
Common stock, $5 par value		224,000				162,000
Retained earnings		29,900				24,700
Total liabilities and equity	$	322,700			$	301,300

  

IKIBAN INC. Income Statement For Year Ended June 30, 2017
Sales				$	688,000
Cost of goods sold					413,000
Gross profit					275,000
Operating expenses
Depreciation expense	$	60,600
Other expenses		69,000
Total operating expenses					129,600
					145,400
Other gains (losses)
Gain on sale of equipment					2,200
Income before taxes					147,600
Income taxes expense					44,090
Net income				$	103,510

Additional Information

1. A $30,000 note payable is retired at its $30,000 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 $59,600 cash.
4. Received cash for the sale of equipment that had cost $50,600, yielding a $2,200 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.

Exercise 16-11 Part 1

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.)
(2) Compute the company's cash flow on total assets ratio for its fiscal year 2017.

IKIBAN, INC. Statement of Cash Flows (Indirect Method) For Year Ended June 30, 2017 Cash flows from operating activities Adjustments to reconcile net income to net cash provided by operating activities Income statement items not affecting cash Changes in current operating assets and liabilities $0 Cash flows from investing activities 0 Cash flows from financing activities 0 Net increase (decrease) in cash $0 Cash balance at prior year-end Cash balance at current year-end

	Cash Flow on Total Assets Ratio Choose Numerator: / Choose Denominator: = Cash Flow on Total Assets Ratio / = Cash flow on total assets ratio / = 0

Answer 1

IKIBAN, INC.
Statement of Cash Flows (Indirect Method)
For Year Ended June 30, 2017
Cash flows from operating activities
Net income	$103,510
Adjustments to reconcile net income to net cash provided by operating activities
Income statement items not affecting cash
Depreciation expense	60,600
Gain on sale of plant assets	-2,200
Changes in current operating assets and liabilities
Increase in accounts receivable	-15,000
Decrease in inventory	23,700
Decrease in prepaid expenses	1,200
Decrease in accounts payable	-6,000
Decrease in wages payable	-9,200
Decrease in income taxes payable	-600
Net cash provided by operating activities		$156,010
Cash flows from investing activities
Cash received from sale of equipment	10,200
Cash paid for equipment	-59,600
Net cash used in investing activities		-49400
Cash flows from financing activities
Cash received from stock issuance	62,000
Cash paid to retire notes	-30,000
Cash paid for dividends	-98,310
Net cash used in financing activities		-66310
Net increase (decrease) in cash		40300
Cash balance at prior year-end		46,000
Cash balance at current year-end		86300
2
Cash Flow on Total Assets Ratio
Choose Numerator:	Choose Denominator:	Cash Flow on Total Assets Ratio
Operating cash flows /	Average total assets =
156010 /	312000 =	50.0%
Workings:
Cash received from sale of equipment:
Cost of Equipment sold	50600
Less: Accumulated depreciation on Equipment	42600	=10000+60600-28000
Book value of Equipment	8000
Add: Gain on sale of Equipment	2200
Cash received from sale of equipment	10200