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 51,000 Inventory 63,800 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 equity $ 317,700 $ 292,900 IKIBAN INC. Income Statement For Year Ended June 30, 2019 Sales $ 678,000 Cost of goods sold 411,000 Gross profit 267,000 Operating expenses Depreciation expense $ 58,600 Other expenses 67,000 Total operating expenses 125,600 141,400 Other gains (losses) Gain on sale of equipment 2,000 Income before taxes 143,400 Income taxes expense 43,890 Net income $ 99,510 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 $57,600 cash. Received cash for the sale of equipment that had cost $48,600, yielding a $2,000 gain. Prepaid Expenses and Wages Payable relate to Other Expenses on the income statement. All purchases and sales of inventory are on credit. (2) Compute the company’s cash flow on total assets ratio for its fiscal year
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.
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 | 51,000 | ||||||
| Inventory | 63,800 | 86,500 | ||||||
| Prepaid expenses | 4,400 | 5,400 | ||||||
| Total current assets | 220,700 | 186,900 | ||||||
| Equipment | 124,000 | 115,000 | ||||||
| Accum. |
(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 | ||||||
| 33,300 | 24,100 | |||||||
| Total liabilities and equity | $ | 317,700 | $ | 292,900 | ||||
| IKIBAN INC. Income Statement For Year Ended June 30, 2019 |
||||||
| Sales | $ | 678,000 | ||||
| Cost of goods sold | 411,000 | |||||
| Gross profit | 267,000 | |||||
| Operating expenses | ||||||
| Depreciation expense | $ | 58,600 | ||||
| Other expenses | 67,000 | |||||
| Total operating expenses | 125,600 | |||||
| 141,400 | ||||||
| Other gains (losses) | ||||||
| Gain on sale of equipment | 2,000 | |||||
| Income before taxes | 143,400 | |||||
| Income taxes expense | 43,890 | |||||
| Net income | $ | 99,510 | ||||
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 $57,600 cash.
- Received cash for the sale of equipment that had cost $48,600, yielding a $2,000 gain.
- Prepaid Expenses and Wages Payable relate to Other Expenses on the income statement.
- All purchases and sales of inventory are on credit.
(2) Compute the company’s cash flow on total assets ratio for its fiscal year
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