Question

Problem 16-1A Indirect: Statement of cash flows LO A1, P1, P2, P3

Forten Company, a merchandiser, recently completed its calendar-year 2013 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 balance sheets and income statement follow.

  

FORTEN COMPANY Comparative Balance Sheets December 31, 2013 and 2012
	2013			2012
Assets
Cash	$	43,649		$	62,500
Accounts receivable		65,825			51,625
Merchandise inventory		274,156			249,800
Prepaid expenses		1,220			1,625
Equipment		143,025			101,000
Accum. depreciation—Equipment		(33,850)			(41,000)
Total assets	$	494,025		$	425,550
Liabilities and Equity
Accounts payable	$	59,975		$	108,350
Short-term notes payable		6,200			4,100
Long-term notes payable		37,625			33,500
Common stock, $5 par value		153,250			145,250
Paid-in capital in excess of par, common stock		24,000			0
Retained earnings		212,975			134,350
Total liabilities and equity	$	494,025		$	425,550

  

FORTEN COMPANY Income Statement For Year Ended December 31, 2013
Sales				$	587,500
Cost of goods sold					287,000
Gross profit					300,500
Operating expenses
Depreciation expense	$	18,100
Other expenses		128,100			146,200
Other gains (losses)
Loss on sale of equipment					(4,025)
Income before taxes					150,275
Income taxes expense					26,250
Net income				$	124,025

  

Additional Information on Year 2013 Transactions
a.	The loss on the cash sale of equipment was $4,025 (details in b).
b.	Sold equipment costing $43,425, with accumulated depreciation of $25,250, for $14,150 cash.
c.	Purchased equipment costing $85,450 by paying $41,000 cash and signing a long-term note payable for the balance.
d.	Borrowed $2,100 cash by signing a short-term note payable.
e.	Paid $40,325 cash to reduce the long-term notes payable.
f.	Issued 1,600 shares of common stock for $20 cash per share.
g.	Declared and paid cash dividends of $45,400.

  

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