FUNDAMENTAL ACCT PRIN TEXT+CONNECT CODE
FUNDAMENTAL ACCT PRIN TEXT+CONNECT CODE
15th Edition
ISBN: 9781265564483
Author: Wild
Publisher: MCG
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Chapter 16, Problem 1GLP

Requirement 1

To determine

To prepare:

    IKIBAN INC.
    Cash flow Statement
    For the year ended June 30, 2015
    Cash flow from Operating Activities
    Net Income

    99,510
    Add: Depreciation expense
    58,600

    Less: Gain on sale of equipment
    -2000

    Adjustments for changes in working capital


    Less: Increase in accounts receivables
    -14000

    Add: Decrease in Inventory
    22700

    Add: Decrease in prepaid expenses
    1000

    Less: Decrease in Accounts payable
    -5000

    Less: Decrease in wages payable
    -9000

    Less: Decrease in Income taxes payable
    -400




    Total adjustments added to net income

    51,900



    Cash flow from Operating Activities (A)151,410



    Cash flow from Investing activities
    Purchase of equipment
    -57600

    Sale of equipment
    10,000




    Cash used in investing activities (B)-47,600



    CASH FLOW from financing activities
    Issue of common stock
    60000

    Payment of notes payable
    -30,000

    Dividends paid
    -90310




    Cash used in financing activities (C)-60,310



    Changes In cash (A+B+C)43,500
    Cash balance - Beginning44,000
    Cash Balance − ending87,500

Requirement 1

Expert Solution
Check Mark

Explanation of Solution

The above statement of cash flows is prepared as under −
The statement of cash flows is divided into three parts −

  1. Cash flow from operating activities
  2. Cash flow from investing activities
  3. Cash flow from financing activities
  4. The calculations and working for all the activities are explained as under −
  5. Cash flow from operating activities
  6. Given,
  7. Net income = $ 99,510
  8. Depreciation expense = $ 58,600 (non-cash expense)
  9. Gain on sale of Equipment = $ 2,000
  10. Current assets, 2015 −
  11. Accounts receivables = $ 65,000
  12. Inventory = $ 63,800
  13. Prepaid expenses = $ 4,400
  14. Current liabilities 2015 −
  15. Accounts Payable = $ 25,000
  16. Wages Payable = $ 6,000
  17. Income Taxes Payable = $ 3,400
  18. Current assets, 2014 −
  19. Accounts receivables = $ 44,000
  20. Inventory = $ 51,000
  21. Prepaid expenses = $ 5,400
  22. Current liabilities 2014 −
  23. Accounts Payable = $ 30,000
  24. Wages Payable = $ 15,000
  25. Income Taxes Payable = $ 3,800


    2015
    2014
    Increase or Decrease
    Amounts
    Current Assets




    Accounts receivables
    65,000
    51,000
    Increase
    14,000
    Inventory
    63,800
    86,500
    Decrease
    22,700
    Prepaid expenses
    4,400
    5,400
    Decrease
    1,000
    Current Liabilities




    Accounts Payable
    25,000
    30,000
    Decrease
    5,000
    Wages Payable
    6,000
    15,000
    Decrease
    9,000
    Income Taxes Payable
    3,400
    3,800
    Decrease
    400

The cash flow from operating activities is prepared on the basis of −

Add: Decrease in Current Assets, Increase in Current Liabilities

Less: Increase in Current Assets, Decrease in Current Assets.
The adjustments are added to net income −

  Cash flow from operating activities = Net Income + Adjustments to reconcile net income

The adjustment to reconcile net income is calculated as under −

  Adjustment to net income = ( Depreciation  Gain on sale of equipment   Increase in accounts receivables  + Decrease in Inventory +Decrease in prepaid expenses   Decrease in Accounts payable   Decrease in wages payable   Decrease in Income taxes payable ) Adjustment to net income = ( $ 58,600  $ 2,000  $ 14,000 + $ 22,700  + $ 1,000  $ 5,000  $ 9,000  $ 400 ) Adjustment to net income = $ 51,900

Cash flow from operating activities is −

  Cash flow from operating activities =Net Income + Adjustments to reconcile net incomeCash flow from operating activities =$ 99,510 $ 51,900Cash flow from operating activities =$ 151,410

The cash flow from operating activities = $ 151,410.

  • Cash flow from or used Investing Activities −
  • The cash flow from or used from investing activities can be calculated as under −
    The sale and purchase of fixed assets are covered in the investing activities.
    Given,

    • Purchas of equipment = $ 57,600
    • Cost of equipment sold = $ 48,600
    • Gain on sale of equipment = $ 2,000
    • Beginning accumulated depreciation = $ 9,000
    • Ending accumulated depreciation = $ 27,000

    Now, the depreciation on the machine sold will be calculated −

       Depreciation on machine = ( Beginning accumulated depreciation  + Depreciation for the year )  Ending accumulated depreciation Depreciation on machine = ( $ 9,000 + $ 58,600 )  $ 27,000Depreciation on machine = $ 40,600

    Now, the selling price of machine will be calculated −

      Selling price of machine = Cost of machine  Depreciation on machine + Gain on sale of machineSelling price of machine = $ 48,600  $ 40,600 + $ 2,000Selling price of machine = $ 10,000

    Now, cash used in investing activities −

      Cash used in investing = Sale of equipment  Purchase of equipmentCash used in investing = $ 10,000  $ 57,600Cash used in investing =  $ 47,600

    The cash used in investing activities = - $ 47,600.

  • Cash flow from financing activities −
  • The cash flow from financing activities is calculated as under −
    Given,
    • Common stock for 2015 = $ 220,000
    • Common stock for 2014 = $ 160,000
    • Payments towards notes payable = $ 30,000
    • Retained earnings beginning = $ 24,100
    • Retained earnings ending = $ 33,300
    • Net income for the year = $ 99,510
    Cash received from issue of common stock −

      Issue of common stock = Common stock for 2015  Common stock for 2014Issue of common stock = $ 220,000  $ 160,000Issue of common stock = $ 60,000

    Cash paid to dividends −

      Dividends paid = Retained earnings beginning + Net income  Retained earnings endingDividends paid = $ 24,100 + $ 99,510  $ 33,300Dividends paid = $ 90,310

    Cash flow used in financing activities −

      Cash flow used in financing activities = Issue of common stock  Payment towards notes payable  Dividends paidCash flow used in financing activities = $ 60,000  $ 30,000  $ 90,310Cash flow used in financing activities =  $ 60,310 After calculating the cash flow from or used from the three activities, the change in cash will be calculated.

       Change in cash = Cash flow used in operating activities + Cash flow used in investing activities                            + Cash flow from financing activitiesChange in cash = (  $ 151,410) + ( $ 47,600) + (-$ 60,310)Change in cash = $ 43,500

    Now, the ending cash balance will be calculated −

      Ending cash balance = Beginning Cash balance + Changes in CashEnding cash balance = $ 44,000 + 43,500Ending cash balance = $ 87,500.

    The statement of cash flow has been prepared.

    Conclusion

    Thus, the statement of cash flows for the year ended December 31, 2016 has been prepared.

    Requirement 2

    To determine

    To compute:

    Cash flow on Total assets ratio of the company for its fiscal year 2015

    Requirement 2

    Expert Solution
    Check Mark

    Answer to Problem 1GLP

    Solution:

    Cash flow on Total assets ratio of the company for its fiscal year 2015 = 49.6%

    Explanation of Solution

    The above answer can be explained as under −
    Given,

    • Cash flow from operating activities = $ 151,410
    • Beginning total assets = $ 317,700
    • Ending total assets = $ 292,900
    • Average total assets=Beginning Total assets+Ending total assets2


      Average total assets=$ 292,900+$ 317,7002Average total assets=$ 305,300

    Now, the cash flow on total assets ratio −

      Cash flow on total assets ratio =  Cash flow from operating activities Average total assets  Cash flow on total assets ratio =  $ 151,410  $ 305,300 Cash flow on total assets ratio = 49.6%

    Conclusion

    Thus, the company’s cash flow on total assets ratio for its fiscal year 2015 has been calculated.

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    Chapter 16 Solutions

    FUNDAMENTAL ACCT PRIN TEXT+CONNECT CODE

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