Exercise 12-11 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 INC. Comparative Balance Sheets June 30, 2019 and 2018 2019 2018 Assets Cash $87,500 $ 44,000 Accounts receivable, net 65,000 Inventory 63,800 51,000 86,500 Prepaid expenses 4,400 5,400 Total current assets 220,700 186,900 Equipment 124,000 115,000 Accum. depreciation- Equipment (27,000) (9,000) Total assets $317,700 $292,900 Liabilities and Equity Accounts payable $ 25,000 $30,000 Wages payable 6,000 15,000 Income taxes payable 3,400 3,800 Total current liabilities 34,400 48,800 Notes payable (long term) 30,000 60,000 Total liabilities 64,400 108,800 Equity Common stock, $5 par value 220,000 160,000 Retained earnings 33,300 24,100 Total liabilities and $317,700 $292,900 equity IKIBAN INC. Income Statement For Year Ended June 30, 2019 Sales Cost of goods sold Gross profit Operating expenses $678,000 411,000 267,000 Depreciation $58,600 expense Other expenses 67,000 Total operating 125,600 expenses 141,400 Other gains (losses) Gain on sale of equipment Income before taxes: Income taxes expense Net income 2,000 143,400 43,890 $ 99,510 Additional Information a. A $30,000 note 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 $57,600 cash d. Received cash for the sale of equipment that had cost $48,600, yielding a $2,000 gain. e. Prepaid Expenses and Wages Payable relate to Other Expenses on the income statement. f. All purchases and sales of inventory are on credit. Exercise 12-11 Part 1 Required: (1) Prepare a statement of cash flows using the indirect method for the year ended June 30, 2019. (Amounts to be deducted should be indicated with a minus sign.) Answer is complete but not entirely correct. IKIBAN, INC. Statement of Cash Flows (Indirect Method) For Year Ended June 30, 2019 Cash flows from operating activities Net income operating activities $ 99,510 Adjustments to reconcile net income to net cash provided by Income statement items not affecting cash Depreciation expense Gain on sale of plant assets Changes in current operating assets 58,600 2,000X and liabilities Increase in accounts receivable 14,000X Decrease in inventory 22,700 Decrease in prepaid expenses 1,000 Decrease in accounts payable 5,000X Decrease in wages payable Decrease in income taxes payable Net cash provided by operating activities Cash flows from investing activities Cash received from sale of 9,000 400X $212,210 10,000 equipment Cash paid for equipment 57,600X Net cash used in investing activities 67,600 Cash flows from financing activities Cash received from stock issuance Cash paid to retire notes Cash paid for dividends 60,000 30,000X 90,310X Net cash used in financing activities Net increase (decrease) in cash Cash balance at prior year-end Cash balance at current year-end 180,310 $460,120 44,000 $504,120