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Homework answers / question archive / The income statement of Kyonggi Inc

The income statement of Kyonggi Inc

Accounting

The income statement of Kyonggi Inc. in Suwon, Korea, contains the following condensed information (currency unit in thousand Korean won, ? 000’s):

KYONGGI INC.

Income Statement

Year Ended December 31, 2019

Sales                                                                                                 ? 6,583,000

Cost of goods sold                                                                               3,427,000

Gross profit                                                                                           3,156,000

Operating expenses                                                                             2,349,000

Profit from operations                                                                             807,000

Interest expense                                                                                     124,000

Profit before income tax                                                                         683,000

Income tax expense                                                                               203,000

Profit                                                                                                  ?   480,000

Kyonggi Inc. showed the following selected current asset and current liability balances on its year-on-year comparative statement of financial position on December 31, 2019:

2019                2018            Increase (Decrease)

Cash                                            ?150,000         ? 30,000             ?120,000

Accounts receivable                      775,000           610,000               165,000

Merchandise inventory               834,000           867,000               (33,000)

Accounts payable                          521,000           501,000                20,000

Income tax payable                        53,000            25,000                28,000

Additional information:

  1. The company uses a perpetual inventory system.
  2. Operating expenses include salaries expense of ?1,000,000, depreciation expense of ?300,000, amortization expense of ?80,000, and a loss on the disposal of machinery of ?24,000.
  3. Used machinery was sold for ?270,000, at a loss of ?24,000.
  4. New machinery was purchased during the year for ?1,250,000. It was partially financed by a bank loan payable issued for ?400,000.
  5. Dividends paid in 2019 totaled ?100,000.

Instructions:

  1. Prepare the statement of cash flows using the indirect method. (40%)
  2. Prepare the statement of cash flows using the direct method. (40%)
  3. Identify the similarities and differences between your answers in parts A and B. (20%)

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A. Cash Flow Statement using the Indirect Method
     
Particulars Amount (?) TOTAL (?)
Cash Flow From Operating Activities    
Net Income 480,000  
Ajustments for non cash items    
Depreciation 300,000  
Amortisation Expenses 80,000  
Loss on sale or Machinery 24,000  
Changes to Working Capital    
Account Receivables -165,000  
Merchandise Inventory 33,000  
Account Payable 20,000  
Income Taxes Payable 28,000  
Net Cash Flows from Operating Activity   800,000
     
Cash flow from Investing Activities    
Sales of Machinery 270,000  
Purchase of Machinery -850,000  
Net cash flow from Investing Activity   -580,000
     
Cash flow from Financing Activity    
Dividend Paid -100,000  
Net Cash Flows from Financing Activity   -100,000
Net Cash Flows during the year   120,000
ADD : Beginning Balance   30,000
Ending Balance   150,000
     
B. Cash Flow Statement using the Direct Method
     
Particulars Amount (?) TOTAL (?)
Collection from Customers                            (610,000 + 6,583,000 -775,000) 6,418,000  
Less: Payment of Income Taxes                                   (25,000 + 203,000 - 53,000) -175,000  
Less: Payment of Interest -124,000  
Less: Payment of Operating Expenses                     (2,349,000 -24,000 - 300,000 - 80,000) 1,945,000  
Less: Payment to accounts Payable                 (3,394,000 + 501,000 -521,000) 3,374,000  
     
Net Cash floe from operating Activity   800,000
     
Cash flow from Investing Activities    
Sales of Machinery 270,000  
Purchase of Machinery -850,000  
Net cash flow from Investing Activity   -580,000
     
Cash flow from Financing Activity    
Dividend Paid -100,000  
Net Cash Flows from Financing Activity   -100,000
Net Cash Flows during the year   120,000
ADD : Beginning Balance   30,000
Ending Balance   150,000
     

C. The cash flow direct method determines changes in cash receipts and payments, which are reported in the cash flow from the operations section. The indirect method takes the net income generated in a period and adds or subtracts changes in the asset and liability accounts to determine the implied cash flow.

There are no differences in the cash flows from investing activities and/or the cash flows from financing activities.

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