Klaben Motors Inc., was formed on January 1, 2016. The following transactions oc

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 direct method.

Explanation / Answer

Klaben Motor Inc.,Income statement for the year ended December 2016.

Note No:

1.Cost of goods sold (FIFO Method):

2. Depreciation on SLM basis:

Cost of equipment=$2,20,000

     Useful life=5

Residual value=$5000 ( Residual value not given assumed $5000)

Depreciation= Cost of equipment-Residual value   = 2,20,000-5000 = $43,000

                                 Useful life                                               5

Balance sheet of Klaben Inc. as on 31st December 2016

Note:

1. Cash balance:

Cash flow statement for the year ended 31 st December 2016

Particulars Note No Amount(in$) Revenue Sales 6,49,000 Less: Expenses Cost of goods sold 1 3,21,000 Rent on store building 25,000 Salary to business employees 1,51,000 Depreciation on equipment 2 43,000   Total Expense 5,40,000 Income tax expense 22,000   Net Income 87,000

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