Question

In: Accounting

Required information [The following information applies to the questions displayed below.] Forten Company, a merchandiser, recently...

Required information

[The following information applies to the questions displayed below.]

Forten Company, a merchandiser, recently completed its calendar-year 2017 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, and (5) Other Expenses are paid in advance and are initially debited to Prepaid Expenses. The company’s income statement and balance sheets follow.

FORTEN COMPANY
Comparative Balance Sheets
December 31, 2017 and 2016
2017 2016
Assets
Cash $ 49,800 $ 73,500
Accounts receivable 65,810 50,625
Inventory 275,656 251,800
Prepaid expenses 1,250 1,875
Total current assets 392,516 377,800
Equipment 157,500 108,000
Accum. depreciation—Equipment (36,625 ) (46,000 )
Total assets $ 513,391 $ 439,800
Liabilities and Equity
Accounts payable $ 53,141 $ 114,675
Short-term notes payable 10,000 6,000
Total current liabilities 63,141 120,675
Long-term notes payable 65,000 48,750
Total liabilities 128,141 169,425
Equity
Common stock, $5 par value 162,750 150,250
Paid-in capital in excess of par, common stock 37,500 0
Retained earnings 185,000 120,125
Total liabilities and equity $ 513,391 $ 439,800

  

FORTEN COMPANY
Income Statement
For Year Ended December 31, 2017
Sales $ 582,500
Cost of goods sold 285,000
Gross profit 297,500
Operating expenses
Depreciation expense $ 20,750
Other expenses 132,400 153,150
Other gains (losses)
Loss on sale of equipment (5,125 )
Income before taxes 139,225
Income taxes expense 24,250
Net income $ 114,975

Additional Information on Year 2017 Transactions

  1. The loss on the cash sale of equipment was $5,125 (details in b).
  2. Sold equipment costing $46,875, with accumulated depreciation of $30,125, for $11,625 cash.
  3. Purchased equipment costing $96,375 by paying $30,000 cash and signing a long-term note payable for the balance.
  4. Borrowed $4,000 cash by signing a short-term note payable.
  5. Paid $50,125 cash to reduce the long-term notes payable.
  6. Issued 2,500 shares of common stock for $20 cash per share.
  7. Declared and paid cash dividends of $50,100.


Required:
Prepare a complete statement of cash flows; report its operating activities according to the direct method. (Amounts to be deducted should be indicated with a minus sign.)
  

FORTEN COMPANY
Statement of Cash Flows
For Year Ended December 31, 2017
Cash flows from operating activities
$0
Cash flows from investing activities
0
Cash flows from financing activities
0
Net increase (decrease) in cash $0
Cash balance at beginning of year
Cash balance at end of year $0

  

Solutions

Expert Solution

FORTEN COMPANY
Cash Flow Statement  
For the ended December 31, 2017
Cash Flow from Operating Activities:
Net Income $    1,14,975.00
Adjustments to reconcile net income to net cash provided by operations:
Loss on sale of Equipment $      5,125.00
Depreciation expense $   20,750.00
Decrease in Accounts Payable $ (61,534.00)
Increase in Accounts receivables $ (15,185.00)
Increase in Inventory $ (23,856.00)
Decrease in Prepaid Expenses $         625.00
$     (74,075.00)
A. Cash Flow from Operating Activities $        40,900.00
Cash Flow from Investing Activities:
Sale of Equipment $   11,625.00
Purchase of Equipment $ (30,000.00)
B. Cash flow from Investing Activities $     (18,375.00)
Cash Flow from Financing Activities:
Issue of Common Stock $   50,000.00
Dividend paid $ (50,100.00)
Proceeds from short term notes payable $      4,000.00
Retirement of long term notes payable $ (50,125.00)
C. Cash Flow from Financing Activities $     (46,225.00)
Increase (Decrease) in cash [A+B+C] $     (23,700.00)
Add: cash at the beginning of the year $        73,500.00
Cash at the end of the year   $        49,800.00

General notes for cash flow
Cash is increased when Current liability increase or Current asset Decrease.
Cash is Decreased when Current liability Decrease or Current asset Increase.
Depreciation or loss on sale of any asset is a non cash expense hence it will be added to net income to get operating cash
Profit on sale of asset or investment is a non cash profit and hence will be deducted from operating income.


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