The following financial statements and additional information are reported. Addi
ID: 2429975 • Letter: T
Question
The following financial statements and additional information are reported.
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 $64,600 cash.
Received cash for the sale of equipment that had cost $55,600, yielding a $2,700 gain.
Prepaid Expenses and Wages Payable relate to Other Expenses on the income statement.
All purchases and sales of inventory are on credit.
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.Comparative Balance Sheets
June 30, 2017 and 2016 2017 2016 Assets Cash $ 103,300 $ 51,000 Accounts receivable, net 75,500 58,000 Inventory 70,800 97,000 Prepaid expenses 5,100 6,800 Total current assets 254,700 212,800 Equipment 131,000 122,000 Accum. depreciation—Equipment (30,500 ) (12,500 ) Total assets $ 355,200 $ 322,300 Liabilities and Equity Accounts payable $ 32,000 $ 40,500 Wages payable 6,700 16,400 Income taxes payable 4,100 5,200 Total current liabilities 42,800 62,100 Notes payable (long term) 37,000 67,000 Total liabilities 79,800 129,100 Equity Common stock, $5 par value 234,000 167,000 Retained earnings 41,400 26,200 Total liabilities and equity $ 355,200 $ 322,300
Explanation / Answer
Answer:
IKIBAN, INC.
Statement of Cash Flows (Indirect Method)
For Year Ended June 30, 2017
Cash flows from operating activities
Net income
$113,510
Adjustments to reconcile net income to net cash provided by operating activities
Income statement items not affecting cash
Depreciation expense
65,600
Gain on sale of plant assets
-2,700
Changes in current operating assets and liabilities
Increase in accounts receivable(58000-75500)
-17,500
Decrease in inventory(97000-70800)
26,200
Decrease in prepaid expenses(6800-5100)
1,700
Decrease in accounts payable (40500-32000)
-8,500
Decrease in wages payable(6700-16400)
-9,700
Decrease in income taxes payable(4100-5200)
-1100
54,000
Net cash provided by operating activities
167,510
Cash flows from investing activities
Cash received from sale of equipment (W.N-1)
10,700
Cash paid for equipment
-64,600
Net cash used in investing activities
-53,900
Cash flows from financing activities
Cash received from stock issuance (234000-167000)
67,000
Cash paid to retire notes
-30,000
Cash paid for dividends (26200+113510-41400)
-98,310
Net cash used in financing activities
-61310
Net increase (decrease) in cash
52,300
Cash balance at prior year-end
51,000
Cash balance at current year-end
103,300
Working notes for the above answer is as under
(1)
Cost of equipment sold (Given)
$ 55,600
Accumulated depreciation of equipment sold*
(47,600)
Book value of equipment sold
8,000
Gain on sale of equipment (Given)
2,700
Cash receipt from sale of equipment
$ 10,700
Accumulated Depreciation, Equipment
Bal., 6/30/2016
12,500
Sale (plug) *47,600
Depr. Expense
65,600
Bal., 6/30/2017
30,500
____________________________________________________________________________
(2)
Cash Flow on Total Assets Ratio
Choose Numerator:
/
Choose Denominator:
=
Cash Flow on Total Assets Ratio
Operatin cash flow
/
Average total Assets
=
Cash flow on total assets ratio
167,510
/
338750
=
49.45%
Average total Assets
=(355200+322300) /2
=338750
IKIBAN, INC.
Statement of Cash Flows (Indirect Method)
For Year Ended June 30, 2017
Cash flows from operating activities
Net income
$113,510
Adjustments to reconcile net income to net cash provided by operating activities
Income statement items not affecting cash
Depreciation expense
65,600
Gain on sale of plant assets
-2,700
Changes in current operating assets and liabilities
Increase in accounts receivable(58000-75500)
-17,500
Decrease in inventory(97000-70800)
26,200
Decrease in prepaid expenses(6800-5100)
1,700
Decrease in accounts payable (40500-32000)
-8,500
Decrease in wages payable(6700-16400)
-9,700
Decrease in income taxes payable(4100-5200)
-1100
54,000
Net cash provided by operating activities
167,510
Cash flows from investing activities
Cash received from sale of equipment (W.N-1)
10,700
Cash paid for equipment
-64,600
Net cash used in investing activities
-53,900
Cash flows from financing activities
Cash received from stock issuance (234000-167000)
67,000
Cash paid to retire notes
-30,000
Cash paid for dividends (26200+113510-41400)
-98,310
Net cash used in financing activities
-61310
Net increase (decrease) in cash
52,300
Cash balance at prior year-end
51,000
Cash balance at current year-end
103,300
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