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		$	72,400					$	88,500
Accounts receivable			88,420						65,625
Inventory			298,156						266,800
Prepaid expenses			1,360						2,195
Total current assets			460,336						423,120
Equipment			142,500						123,000
Accum. depreciation—Equipment			(44,125	)					(53,500	)
Total assets		$	558,711					$	492,620
Liabilities and Equity
Accounts payable		$	68,141					$	137,175
Short-term notes payable			14,500						9,000
Total current liabilities			82,641						146,175
Long-term notes payable			57,500						63,750
Total liabilities			140,141						209,925
Equity
Common stock, $5 par value			185,250						165,250
Paid-in capital in excess of par, common stock			60,000						0
Retained earnings			173,320						117,445
Total liabilities and equity		$	558,711					$	492,620

  

FORTEN COMPANY Income Statement For Current Year Ended December 31
Sales				$	657,500
Cost of goods sold					300,000
Gross profit					357,500
Operating expenses
Depreciation expense	$	35,750
Other expenses		147,400			183,150
Other gains (losses)
Loss on sale of equipment					(20,125	)
Income before taxes					154,225
Income taxes expense					45,250
Net income				$	108,975

Additional Information on Current Year Transactions

1. The loss on the cash sale of equipment was $20,125 (details in b).
2. Sold equipment costing $91,875, with accumulated depreciation of $45,125, for $26,625 cash.
3. Purchased equipment costing $111,375 by paying $60,000 cash and signing a long-term note payable for the balance.
4. Borrowed $5,500 cash by signing a short-term note payable.
5. Paid $57,625 cash to reduce the long-term notes payable.
6. Issued 4,000 shares of common stock for $20 cash per share.
7. Declared and paid cash dividends of $53,100.

1. Prepare a complete statement of cash flows using the indirect method for the current year.

Answer 1

Answer-

FORTEN COMPANY
STATEMENT OF CASH FLOWS (USING INDIRECT METHOD)
FOR THE YEAR ENDED 31
Particulars		Amount
		$
Cash flow from operating activities
Net Income		108975
Adjustments to reconcile net income to net cash provided by operating activities
Adjustment for non cash effects
		35750
Depreciation expenses
Loss on sale of equipment		20125
Change in operating assets & liabilities
Increase in accounts receivable		-22795
Increase in inventory		-31356
Decrease in prepaid expenses		835
Decrease in accounts payable		-69034
Net cash flow from operating activities (a)		42500
Cash Flow from Investing activities
New equipment purchased		-60000
Equipment sold		26625
Net cash Flow from Investing activities (b)		-33375
Cash Flow from Financing activities
Cash dividends paid		-53100
Common stock issued		80000
Short term note issued		5500
Long term notes paid		-57625
Net cash Flow from Financing activities (c)		-25225
Net Change in cash c=a+b+c		-16100
Beginning cash balance		88500
Closing cash balance		72400
Schedule of non cash investing & financing activities
Issuance of long term note for equipment	($111375-$60000)	51375