Question

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The following financial statements and additional information are reported.

IKIBAN INC. Comparative Balance Sheets June 30, 2017 and 2016
	2017				2016
Assets
Cash	$	87,500			$	44,000
Accounts receivable, net		65,000				51,000
Inventory		63,800				86,500
Prepaid expenses		4,400				5,400
Total current assets		220,700				186,900
Equipment		124,000				115,000
Accum. depreciation—Equipment		(27,000	)			(9,000	)
Total assets	$	317,700			$	292,900
Liabilities and Equity
Accounts payable	$	25,000			$	30,000
Wages payable		6,000				15,000
Income taxes payable		3,400				3,800
Total current liabilities		34,400				48,800
Notes payable (long term)		30,000				60,000
Total liabilities		64,400				108,800
Equity
Common stock, $5 par value		220,000				160,000
Retained earnings		33,300				24,100
Total liabilities and equity	$	317,700			$	292,900

  

IKIBAN INC. Income Statement For Year Ended June 30, 2017
Sales				$	678,000
Cost of goods sold					411,000
Gross profit					267,000
Operating expenses
Depreciation expense	$	58,600
Other expenses		67,000
Total operating expenses					125,600
					141,400
Other gains (losses)
Gain on sale of equipment					2,000
Income before taxes					143,400
Income taxes expense					43,890
Net income				$	99,510

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 $57,600 cash.

Received cash for the sale of equipment that had cost $48,600, yielding a $2,000 gain.

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

All purchases and sales of inventory are on credit.

equired:

(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.

Answer 1

IKIBAN, INC.
Statement of Cash Flows (Indirect Method)
For Year Ended June 30, 2017
Cash flows from operating activities
Net income	$99,510
Adjustments to reconcile net income to net cash provided by operating activities
Income statement items not affecting cash
Depreciation expense	58,600
Gain on sale of plant assets	-2,000
Changes in current operating assets and liabilities
Increase in accounts receivable	-14,000
Decrease in inventory	22,700
Decrease in prepaid expenses	1,000
Decrease in accounts payable	-5,000
Decrease in wages payable	-9,000
Decrease in income taxes payable	-400
Net cash provided by operating activities		$151,410
Cash flows from investing activities
Cash received from sale of equipment	10,000
Cash paid for equipment	-57,600
Net cash used in investing activities		-47600
Cash flows from financing activities
Cash received from stock issuance	60,000
Cash paid to retire notes	-30,000
Cash paid for dividends	-90,310
Net cash used in financing activities		-60310
Net increase (decrease) in cash		43500
Cash balance at prior year-end		44,000
Cash balance at current year-end		87500
2
Cash Flow on Total Assets Ratio
Choose Numerator:	Choose Denominator:	Cash Flow on Total Assets Ratio
Operating cash flows	Average total assets	Cash Flow on Total Assets Ratio
151410	305300	49.6%
Workings:
Cash received from sale of equipment:
Cost of Equipment sold	48600
Less: Accumulated depreciation on Equipment	40600		=9000+58600-27000
Book value of Equipment	8000
Add: Gain on sale of Equipment	2000
Cash received from sale of equipment	10000