Question

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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	$	73,900			$	89,500
Accounts receivable		89,930				66,625
Inventory		299,656				267,800
Prepaid expenses		1,370				2,215
Total current assets		464,856				426,140
Equipment		141,500				124,000
Accum. depreciation—Equipment		(44,625	)			(54,000	)
Total assets	$	561,731			$	496,140
Liabilities and Equity
Accounts payable	$	69,141			$	138,675
Short-term notes payable		14,800				9,200
Total current liabilities		83,941				147,875
Long-term notes payable		57,000				64,750
Total liabilities		140,941				212,625
Equity
Common stock, $5 par value		194,750				166,250
Paid-in capital in excess of par, common stock		53,500				0
Retained earnings		172,540				117,265
Total liabilities and equity	$	561,731			$	496,140

  

FORTEN COMPANY Income Statement For Year Ended December 31, 2017
Sales				$	662,500
Cost of goods sold					301,000
Gross profit					361,500
Operating expenses
Depreciation expense	$	36,750
Other expenses		148,400			185,150
Other gains (losses)
Loss on sale of equipment					(21,125	)
Income before taxes					155,225
Income taxes expense					46,650
Net income				$	108,575

Problem 12-3A Indirect: Statement of cash flows LO A1, P1, P2, P3

Additional Information on Year 2017 Transactions

1. The loss on the cash sale of equipment was $21,125 (details in b).
2. Sold equipment costing $94,875, with accumulated depreciation of $46,125, for $27,625 cash.
3. Purchased equipment costing $112,375 by paying $62,000 cash and signing a long-term note payable for the balance.
4. Borrowed $5,600 cash by signing a short-term note payable.
5. Paid $58,125 cash to reduce the long-term notes payable.
6. Issued 4,100 shares of common stock for $20 cash per share.
7. Declared and paid cash dividends of $53,300.

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

Answer-

FORTEN COMPANY
STATEMENT OF CASH FLOWS (USING INDIRECT METHOD)
FOR THE YEAR ENDED 31
Particulars		Amount
		$
Cash flow from operating activities
Net Income		108575
Adjustments to reconcile net income to net cash provided by operating activities
Adjustment for non cash effects
Depreciation expenses		36750
Loss on sale of equipment		21125
Change in operating assets & liabilities
Increase in accounts receivable		-23305
Increase in inventory		-31856
Decrease in prepaid expenses		845
Decrease in accounts payable		-69534
Net cash flow from operating activities (a)		42600
Cash Flow from Investing activities
New equipment purchased		-62000
Equipment sold		27625
Net cash Flow from Investing activities (b)		-34375
Cash Flow from Financing activities
Cash dividends paid		-53300
Common stock issued		82000
Short term note issued		5600
Long term notes paid		-58125
Net cash Flow from Financing activities (c)		-23825
Net Change in cash c=a+b+c		-15600
Beginning cash balance		89500
Closing cash balance		73900
Schedule of non cash investing & financing activities
Issuance of long term note for equipment	($112375-$62000)	50375