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	$	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		192,750				165,250
Paid-in capital in excess of par, common stock		52,500				0
Retained earnings		173,320				117,445
Total liabilities and equity	$	558,711			$	492,620

  

FORTEN COMPANY Income Statement For Year Ended December 31, 2017
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 Year 2017 Transactions

The loss on the cash sale of equipment was $20,125 (details in b).

Sold equipment costing $91,875, with accumulated depreciation of $45,125, for $26,625 cash.

Purchased equipment costing $111,375 by paying $60,000 cash and signing a long-term note payable for the balance.

Borrowed $5,500 cash by signing a short-term note payable.

Paid $57,625 cash to reduce the long-term notes payable.

Issued 4,000 shares of common stock for $20 cash per share.

Declared and paid cash dividends of $53,100.

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.)
  

FORTEN COMPANY
Statement of Cash Flows
For Year Ended December 31, 2017
Cash flows from operating activities
not attempted	not attempted
Adjustments to reconcile net income to net cash provided by operations:
not attempted	not attempted
not attempted	not attempted
not attempted	not attempted
not attempted	not attempted
not attempted	not attempted
not attempted	not attempted
not attempted	not attempted
not attempted		$0
Cash flows from investing activities
not attempted	not attempted
not attempted	not attempted
not attempted	not attempted
not attempted		0
Cash flows from financing activities:
not attempted	not attempted
not attempted	not attempted
not attempted	not attempted
not attempted	not attempted
not attempted	not attempted
not attempted		0
Net increase (decrease) in cash		$0
Cash balance at beginning of year		not attempted
Cash balance at end of year

Answer 1

STATEMENT OF CASH FLOW
	Amount in $	Amount in $
Net income		$          1,08,975
Cash flows from operating activities
Adjustments for:
Depreciation of the year	$             35,750
Loss on sale of Equipment	$             20,125
		$             55,875
Effects/ changes in Assets & Liabilities
(Increase) / Decrease in Account receivables	$            -22,795
Inventory Decrease / (Increase)	$            -31,356
Prepaid Expenses	$                   835
Accounts payable Increase / ( Decrese)	$            -69,034
		$        -1,22,350
Net cash from operating activities		$             42,500
Cash flows from investing activities
Purchase of Equipment	$            -60,000
Sale of Equipment	$             26,625
Net cash used in investing activities		$            -33,375
Cash flows from Financing activities
Issue of Common Stock	$             80,000
Short Term Note Payalbe Amt Borrowed	$                5,500
Long Term Note	$            -57,625
Dividend Paid	$            -53,100
Net cash used in financing activities		$            -25,225
Net increase in cash and cash equivalents		$            -16,100
Add :Cash and cash equivalents at beginning of period		$             88,500
Cash and cash equivalents at end of period		$             72,400
CALCULATION OF LOSS ON SALE OF PLANT
Purchase Value	$             91,875
Less: Accumulated Depreciation	$             45,125
Book Value of Equipment	$             46,750
Less : Sale Value of Equipment	$             26,625
Loss on Sale of Equipmet =	$             20,125