Klaben Motors Inc., was formed on January 1, 2016. The following transactions oc
ID: 2410625 • Letter: K
Question
Klaben Motors Inc., was formed on January 1, 2016. The following transactions occurred during 2016: On January 1, 2016, Klaben issued its common stock for $510,000. Early in January, Klaben made the following payments: a. $220,000 for equipment b. $243,000 for inventory (9 cars @ $27,000 each) c. $25,000 for 2016 rent on a store building. In February, Klaben purchased 3 cars for inventory on account. Cost for this inventory was $117,000 ($39,000 each). Before year-end, Klaben paid $70,200 of this debt. The company uses the first-in, first-out (FIFO) method to account for inventory. During 2016, Klaben sold 11 autos for a total of $649,000. Before year-end, it had collected 80% of this amount. The business employs 2 people. The combined annual payroll is $151,000, of which Klaben owes $1,000 at year-end. At the end of the year, Klaben paid income tax of $22,000. Late in 2016, Klaben declared and paid cash dividends of $11,000. For equipment, Klaben uses the straight-line depreciation method, over five years, with residual value. Requirements: 1. Prepare Klaben’s income statement for the year ended December 31, 2016. Use the single-step format, with all the revenues listed together and all expenses listed together. 2. Prepare Klaben’s balance sheet at December 31, 2016. 3. Prepare Klaben’s statement of cash flows for the year ended December 31, 2016. Format cash flows from operating activities by using the indirect method.
Explanation / Answer
Klaben Motors Inc
Income Statement
For year ended 31st December 2016
Sales
649000
Less:Cost of goods Sold
Purchases
360000
Less:Closing Inventory ( 1 Unsold motor cycle costing 39000 using FIFO)
39000
321000
Gross Profit
328000
Selling and Administrative Expenses
Rent
25000
Salary
151000
Depreciation
44000
Total Expenses
220000
Profit Before Taxes
108000
Taxes Paid
22000
Profit After Tax
86000
Klaben Motors Inc
Balance Sheet
For year ended 31st December 2016
Assets
Cash
288000
Equipment
220000
Less:Depreciation
44000
176000
Inventory
39000
Accounts Receivables
129800
Total Assets
632800
Liabilities
Accounts Payable
46800
Accrued Expenses
1000
Common Stock
510000
Retained Earnings
86000
Less-Dividends
11000
75000
Total Liabilities
632800
Klaben Motors Inc
Cash Flow Statement
For year ended 31st December 2016
A. Cash Flows from Operating Activity
Net Income
$ 86,000.00
Adjustments
Depreciation expense
$ 44,000.00
Increase in Accounts receivables
$ (129,800.00)
Increase in Accounts payables
$ 46,800.00
Increase in Inventory
$ (39,000.00)
Increase In accrued Expenses
$ 1,000.00
$ (77,000.00)
Net cash flow from Operating activities
$ 9,000.00
B. Cash flows from Investing Activities
Purchase of equipments
$ (220,000.00)
Net Cash flows from Investing activities
$ (220,000.00)
C. Cash Flows from Financing activities
Issuance of Common Stock
$ 510,000.00
payments of dividends
$ (11,000.00)
Cash flows from Financing activities
$ 499,000.00
Net Increase (Decrease) in Cash [A+B+C]
$ 288,000.00
Cash at the beginning
$ -
Cash at the end
$ 288,000.00
Working Notes
Calculation of Accounts Payable
Purchase on Account
117000
Cash Paid in Year
70200
Payable
46800
Calculation of Accounts Receivables
Sales
649000
Cash Collected in year
519200
Receivables
129800
Klaben Motors Inc
Income Statement
For year ended 31st December 2016
Sales
649000
Less:Cost of goods Sold
Purchases
360000
Less:Closing Inventory ( 1 Unsold motor cycle costing 39000 using FIFO)
39000
321000
Gross Profit
328000
Selling and Administrative Expenses
Rent
25000
Salary
151000
Depreciation
44000
Total Expenses
220000
Profit Before Taxes
108000
Taxes Paid
22000
Profit After Tax
86000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.