6.2 The following financial statements and additional information are reported. IKIBAN INCORPORATED Comparative Balance Sheets At June 30 2021 2020 Assets Cash $ 77,900 $ 60,000 Accounts receivable, net 89,000 67,000 Inventory 79,800 110,500 Prepaid expenses 6,000 8,600 Total current assets 252,700 246,100 Equipment 140,000 131,000 Accumulated depreciation—Equipment (35,000) (17,000) Total assets $ 357,700 $ 360,100 Liabilities and Equity Accounts payable $ 41,000 $ 54,000 Wages payable 7,600 18,200 Income taxes payable 5,000 7,000 Total current liabilities 53,600 79,200 Notes payable (long term) 33,200 76,000 Total liabilities 86,800 155,200 Equity Common stock, $5 par value 252,000 176,000 Retained earnings 18,900 28,900 Total liabilities and equity $ 357,700 $ 360,100 IKIBAN INCORPORATED Income Statement For Year Ended June 30, 2021 Sales $ 758,000 Cost of goods sold 427,000 Gross profit 331,000 Operating expenses (excluding depreciation) 83,000 Depreciation expense 74,600 173,400 Other gains (losses) Gain on sale of equipment 3,600 Income before taxes 177,000 Income taxes expense 45,490 Net income $ 131,510 Additional Information A $42,800 note payable is retired at its $42,800 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 $73,600 cash. Received cash for the sale of equipment that had cost $64,600, yielding a $3,600 gain. Prepaid Expenses and Wages Payable relate to Operating Expenses on the income statement. All purchases and sales of inventory are on credit. Using the direct method, prepare the statement of cash flows for the year ended June 30, 2021. (Amounts to be deducted should be indicated with a minus sign.)
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.
6.2
The following financial statements and additional information are reported.
| IKIBAN INCORPORATED | ||
| Comparative Balance Sheets | ||
| At June 30 | 2021 | 2020 |
|---|---|---|
| Assets | ||
| Cash | $ 77,900 | $ 60,000 |
| Accounts receivable, net | 89,000 | 67,000 |
| Inventory | 79,800 | 110,500 |
| Prepaid expenses | 6,000 | 8,600 |
| Total current assets | 252,700 | 246,100 |
| Equipment | 140,000 | 131,000 |
| Accumulated |
(35,000) | (17,000) |
| Total assets | $ 357,700 | $ 360,100 |
| Liabilities and Equity | ||
| Accounts payable | $ 41,000 | $ 54,000 |
| Wages payable | 7,600 | 18,200 |
| Income taxes payable | 5,000 | 7,000 |
| Total current liabilities | 53,600 | 79,200 |
| Notes payable (long term) | 33,200 | 76,000 |
| Total liabilities | 86,800 | 155,200 |
| Equity | ||
| Common stock, $5 par value | 252,000 | 176,000 |
| 18,900 | 28,900 | |
| Total liabilities and equity | $ 357,700 | $ 360,100 |
| IKIBAN INCORPORATED | |
| Income Statement | |
| For Year Ended June 30, 2021 | |
| Sales | $ 758,000 |
|---|---|
| Cost of goods sold | 427,000 |
| Gross profit | 331,000 |
| Operating expenses (excluding depreciation) | 83,000 |
| Depreciation expense | 74,600 |
| 173,400 | |
| Other gains (losses) | |
| Gain on sale of equipment | 3,600 |
| Income before taxes | 177,000 |
| Income taxes expense | 45,490 |
| Net income | $ 131,510 |
Additional Information
- A $42,800 note payable is retired at its $42,800 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 $73,600 cash.
- Received cash for the sale of equipment that had cost $64,600, yielding a $3,600 gain.
- Prepaid Expenses and Wages Payable relate to Operating Expenses on the income statement.
- All purchases and sales of inventory are on credit.
Using the direct method, prepare the statement of
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