Required information Exercise 12-11 Indirect: Preparing statement of cash flows

Question

Required information Exercise 12-11 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 $ 75,500 $ 64,000 Accounts receivable, net 95,000 71,000 Inventory 83,800 116,500 Prepaid expenses 6,400 9,400 Total current assets 260,700 260,900 Equipment 144,000 135,000 Accum. depreciation—Equipment (37,000 ) (19,000 ) Total assets $ 367,700 $ 376,900 Liabilities and Equity Accounts payable $ 45,000 $ 60,000 Wages payable 8,000 19,000 Income taxes payable 5,400 7,800 Total current liabilities 58,400 86,800 Notes payable (long term) 50,000 80,000 Total liabilities 108,400 166,800 Equity Common stock, $5 par value 260,000 180,000 Retained earnings 700 30,100 Total liabilities and equity $ 367,700 $ 376,900 IKIBAN INC. Income Statement For Year Ended June 30, 2017 Sales $ 778,000 Cost of goods sold 431,000 Gross profit 347,000 Operating expenses Depreciation expense $ 78,600 Other expenses 87,000 Total operating expenses 165,600 181,400 Other gains (losses) Gain on sale of equipment 4,000 Income before taxes 185,400 Income taxes expense 45,890 Net income $ 139,510 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 $77,600 cash. Received cash for the sale of equipment that had cost $68,600, yielding a $4,000 gain. Prepaid Expenses and Wages Payable relate to Other Expenses on the income statement. All purchases and sales of inventory are on credit. Exercise 12-11 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.)

Explanation / Answer

Statement of cashflows Cashflows from operating activities: Net income 139510 Adjustment to reconcile net income to net cash flow from operating activities: Depreciation expenses 78600 Gain on sale of equipment -4000 Changes in current operating assets and liabilities: Increase in accounts receivable (95000-71000) -24000 Decrease in inventories (116500-83800) 32700 Decrease in prepaid expenses (9400-6400) 3000 Decrease in accounts payable (60000-45000) -15000 Decrease in wages payable (19000-8000) -11000 Decrease in income taxes payable (7800-5400) -2400 Net cashflow from operating activities …………………a 197410 Cashflows from (used for) investing activities: Cash from sale of equipment (Note:2) 12000 Cash used for purchase of equipment -77600 Net Cashflows used for investing activities…………..b -65600 Cashflows from (used for) financing activities: Cash from sale of common stock (260000-180000) 80000 Redemption of note payable -30000 Cash used for dividends (Note:1) -170310 Net cashflows from financing activities………………c -120310 Increase in cash (a+b+c) 11500 Cash at the beginning of the year 64000 Cash at the end of the year 75500 Note: 1.Retained earnings Beginning balance 30100 Add:net income 139510 169610 Less:Ending balance -700 Debit balance Dividend paid 170310 2.Accumulated depreciation Beginning balance 19000 Add:Depreciation expense 78600 97600 Less:Ending balance 37000 Depreciation of equipment sold 60600 Cash from sale of equipment=(68600-60600)+4000=12000

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