Question

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

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

Refer to the information reported about Forten Company in Problem 16-3A.

Required

Prepare a complete statement of cash flows using a spreadsheet as in Exhibit 16A.1; report its operating activities using the indirect method. Identify the debits and credits in the Analysis of Changes columns with letters that correspond to the following list of transactions and events.

a. Net income was $114,975.
b. Accounts receivable increased.
c. Inventory increased.
d. Prepaid expenses decreased.
e. Accounts payable decreased.
f. Depreciation expense was $20,750.
g. Sold equipment costing $46,875, with accumulated depreciation of $30,125, for $11,625 cash. This yielded a loss of $5,125.
h. Purchased equipment costing $96,375 by paying $30,000 cash and (i.) by signing a long-term notepayable for the balance.
j. Borrowed $4,000 cash by signing a short-term note payable.
k. Paid $50,125 cash to reduce the long-term notes payable.
l. Issued 2,500 shares of common stock for $20 cash per share.
m. Declared and paid cash dividends of $50,100.

Answer 1

	Statement of cash flow
	Cash flows from operating activities
	net income					114,975
	Adjustments to reconcile net income to net
	cash provided by operations:
	Depreciation expense					20,750
	loss on sale of Equipment					5,125
	increase in account receivable					-15185
	increase in inventory					-23856
	Decrease in prepaid expense					625
	Decrease in accounts payable					-61534
	net cash provided by operating activities						40,900
	Cash from investing activities
	cash from sale of Equipment					11,625
	cash for purchase of Equipment					-30,000
	Cash used fro investing activities						-18,375
	Cash from financing activities
	Cash from short term notes payable					4,000
	Cash paid for long term notes payable					-50,125
	Cash from stock issue					50000
	paid cash dividend					-50,100
	Cash used for financing activity						-46,225
	Net decrease in cash						-23,700
	Cash at the beginning og the year						73500
	Cash at year end						49,800