Exercise 12-12 (AlgO) Indirect: Preparing statement of cash flows [The following information applies to the questions displayed below.] The following financial statements and additional information are reported. IKIBAN INCORPORATED Comparative Balance Sheets 2021 At June 30 Assets Cash Accounts receivable, net Inventory Prepaid expenses Total current assets Equipment Accumulated depreciation-Equipment 2020 $ 94,900 96,500 84,800 6,500 282,700 145,000 (37,500) $ 390,200 $ 65,000 72,000 118,000 9,600 264,600 136,000 (19,500) $ 381,100 Total assets Liabilities and Equity Accounts payable Wages payable Income taxes payable Total current liabilities Notes payable (long term) Total liabilities Equity Common stock, $5 par value Retained earnings $ 46,000 8,100 5,500 59,600 51,000 110,600 $ 61,500 19,200 8,000 88,700 81,000 169,700 262,000 17,600 181,000 30,400 $ 381,100 Total liabilities and equity $ 390,200 IKIBAN INCORPORATED Income Statement For Year Ended June 30, 2021 $ 783,000 432,000 351,000 88,000 79,600 183,400 Sales Cost of goods sold Gross profit Operating expenses (excluding depreciation) Depreciation expense Other gains (losses)
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
![Exercise 12-12 (Algo) Indirect: Preparing statement of cash flows LO P2, P3, A1
[The following information applies to the questions displayed below.]
The following financial statements and additional information are reported.
IKIBAN INCORPORATED
Comparative Balance Sheets
2021
At June 30
Assets
Cash
Accounts receivable, net
Inventory
Prepaid expenses
Total current assets
2020
$ 94,900
96,500
84,800
6,500
282,700
145,000
(37,500)
$ 390,200
$ 65,000
72,000
118,000
9,600
264,600
136,000
(19,500)
$ 381,100
Equipment
Accumulated depreciation-Equipment
Total assets
Liabilities and Equity
Accounts payable
Wages payable
Income taxes payable
Total current liabilities
Notes payable (long term)
Total liabilities
Equity
Common stock, $5 par value
Retained earnings
$ 46,000
8,100
5,500
59,600
51,000
110,600
$ 61,500
19,200
8,000
88,700
81,000
169,700
262,000
17,600
181,000
30,400
$ 381,100
Total liabilities and equity
$ 390,200
IKIBAN INCORPORATED
Income Statement
For Year Ended June 30, 2021
$ 783,000
432,000
351,000
88,000
79,600
183,400
Sales
Cost of goods sold
Gross profit
Operating expenses (excluding depreciation)
Depreciation expense
Other gains (losses)
Gain on sale of equipment
Income before taxes
4,100
187,500
45,990
$ 141,510
Income taxes expense
Net income
Additional Information
a. A $30,000 notes payable is retired at its $30,000 carrying (book) value in exchange for cash.
b. The only changes affecting retained earnings are net income and cash dividends paid.
c. New equipment is acquired for $78,600 cash.
d. Received cash for the sale of equipment that had cost $69,600, yielding a $4,100 gain.
e. Prepaid Expenses and Wages Payable relate to Operating Expenses on the income statement.
f. All purchases and sales of inventory are on credit.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd5971670-0a42-4bc2-9ebc-b3e74c2e71cb%2Ff2ca7c30-a1db-4778-a655-6e8e7c463e5e%2Fxgy6moj_processed.png&w=3840&q=75)
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