Question

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	$	55,900			$	77,500
Accounts receivable		71,810				54,625
Inventory		281,656				255,800
Prepaid expenses		1,250				1,975
Total current assets		410,616				389,900
Equipment		153,500				112,000
Accum. depreciation—Equipment		(38,625	)			(48,000	)
Total assets	$	525,491			$	453,900
Liabilities and Equity
Accounts payable	$	57,141			$	120,675
Short-term notes payable		11,200				6,800
Total current liabilities		68,341				127,475
Long-term notes payable		63,000				52,750
Total liabilities		131,341				180,225
Equity
Common stock, $5 par value		170,750				154,250
Paid-in capital in excess of par, common stock		41,500				0
Retained earnings		181,900				119,425
Total liabilities and equity	$	525,491			$	453,900

  

FORTEN COMPANY Income Statement For Year Ended December 31, 2017
Sales				$	602,500
Cost of goods sold					289,000
Gross profit					313,500
Operating expenses
Depreciation expense	$	24,750
Other expenses		136,400			161,150
Other gains (losses)
Loss on sale of equipment					(9,125	)
Income before taxes					143,225
Income taxes expense					29,850
Net income				$	113,375

Additional Information on Year 2017 Transactions

1. The loss on the cash sale of equipment was $9,125 (details in b).
2. Sold equipment costing $58,875, with accumulated depreciation of $34,125, for $15,625 cash.
3. Purchased equipment costing $100,375 by paying $38,000 cash and signing a long-term note payable for the balance.
4. Borrowed $4,400 cash by signing a short-term note payable.
5. Paid $52,125 cash to reduce the long-term notes payable.
6. Issued 2,900 shares of common stock for $20 cash per share.
7. Declared and paid cash dividends of $50,900.

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

Answer 1

Answer-1)-

FORTEN COMPANY
STATEMENT OF CASH FLOWS (USING INDIRECT METHOD)
FOR THE YEAR ENDED 31 DECEMBER,2017
Particulars		Amount
		$
Cash flow from operating activities
Net Income		113375
Adjustments to reconcile net income to net cash provided by operating activities
Adjustment for non cash effects
Depreciation		24750
Loss on sale of equipment		9125
Change in operating assets & liabilities
Increase in accounts receivable		-17185
Increase in inventory		-25856
Decrease in prepaid expenses		725
Decrease in accounts payable		-63534
Net cash flow from operating activities (a)		41400
Cash Flow from Investing activities
New equipment purchased		-38000
Equipment sold		15625
Net cash Flow from Investing activities (b)		-22375
Cash Flow from Financing activities
Cash dividends paid		-50900
Common stock issued		58000
Short term note issued		4400
Long term notes paid		-52125
Net cash Flow from Financing activities (c)		-40625
Net Change in cash c=a+b+c		-21600
Beginning cash balance		77500
Closing cash balance		55900
Schedule of non cash investing & financing activities
Issuance of long term note for equipment	($100375-$38000)	62375