Question

Forten Company's current year income statement, comparative balance sheets, and additional information follow. 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.

FORTEN COMPANY Comparative Balance Sheets December 31
	Current Year						Prior Year
Assets
Cash		$	67,900					$	85,500
Accounts receivable			83,890						62,625
Inventory			293,656						263,800
Prepaid expenses			1,330						2,135
Total current assets			446,776						414,060
Equipment			145,500						120,000
Accum. depreciation—Equipment			(42,625	)					(52,000	)
Total assets		$	549,651					$	482,060
Liabilities and Equity
Accounts payable		$	65,141					$	132,675
Short-term notes payable			13,600						8,400
Total current liabilities			78,741						141,075
Long-term notes payable			59,000						60,750
Total liabilities			137,741						201,825
Equity
Common stock, $5 par value			180,750						162,250
Paid-in capital in excess of par, common stock			55,500						0
Retained earnings			175,660						117,985
Total liabilities and equity		$	549,651					$	482,060

 

FORTEN COMPANY Income Statement For Current Year Ended December 31
Sales				$	642,500
Cost of goods sold					297,000
Gross profit					345,500
Operating expenses
Depreciation expense	$	32,750
Other expenses		144,400			177,150
Other gains (losses)
Loss on sale of equipment					(17,125	)
Income before taxes					151,225
Income taxes expense					41,050
Net income				$	110,175

Additional Information on Current Year Transactions

1. The loss on the cash sale of equipment was $17,125 (details in b).
2. Sold equipment costing $82,875, with accumulated depreciation of $42,125, for $23,625 cash.
3. Purchased equipment costing $108,375 by paying $54,000 cash and signing a long-term note payable for the balance.
4. Borrowed $5,200 cash by signing a short-term note payable.
5. Paid $56,125 cash to reduce the long-term notes payable.
6. Issued 3,700 shares of common stock for $20 cash per share.
7. Declared and paid cash dividends of $52,500.

Required:
1. Prepare a complete statement of cash flows using the indirect method for the current year. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Forten Company 

Statement of Cash Flows

For Year Ended December 31,2017

Particulars	Amount$	Amount$
Cash Flow from operating Activities
Net Income		1,10,175
Adjustments to reconcile net income to net cash provided by operations
Depreciation Expenses	32,750
Accounts Receivable Increase	-21,265
Inventory Increase	-29,856
Prepaid Expense Decrease	805
Accounts Payable Decrease	-67,534
Loss on disposal of equipment	17,125	-67,975
Net cash provided by operating activities		42,200
Cash flows from investing activities
Cash paid for Equipment	-54,000
Cash received from sale of equipment	23,625
Net cash used in investing activities		-30,375
Cash flows from financing activities
Cash borrowed on short term note	5,200
Cash paid on long term note	-56,125
Cash received from issuing stock	74,000
Cash paid for Dividends	-52,500
Net cash used in Financing activities		-29,425
Net increase(Decrease) in cash		-17,600
Cash Balance at Beginning of Year		85,500
Cash Balance at End of Year		67,900

Cash balance at the end of year December 31,2017