Question

[The following information applies to the questions displayed below.] 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 $ 70,900 $ 87,500 Accounts receivable 86,910 64,625 Inventory 296,656 265,800 Prepaid expenses 1,350 2,175 Total current assets 455,816 420,100 Equipment 143,500 122,000 Accum. depreciation—Equipment (43,625 ) (53,000 ) Total assets $ 555,691 $ 489,100 Liabilities and Equity Accounts payable $ 67,141 $ 135,675 Short-term notes payable 14,200 8,800 Total current liabilities 81,341 144,475 Long-term notes payable 58,000 62,750 Total liabilities 139,341 207,225 Equity Common stock, $5 par value 190,750 164,250 Paid-in capital in excess of par, common stock 51,500 0 Retained earnings 174,100 117,625 Total liabilities and equity $ 555,691 $ 489,100 FORTEN COMPANY Income Statement For Year Ended December 31, 2017 Sales $ 652,500 Cost of goods sold 299,000 Gross profit 353,500 Operating expenses Depreciation expense $ 34,750 Other expenses 146,400 181,150 Other gains (losses) Loss on sale of equipment (19,125 ) Income before taxes 153,225 Income taxes expense 43,850 Net income $ 109,375 Additional Information on Year 2017 Transactions Net income was $109,375. Accounts receivable increased. Inventory increased. Prepaid expenses decreased. Accounts payable decreased. Depreciation expense was $34,750. Sold equipment costing $88,875, with accumulated depreciation of $44,125, for $25,625 cash. This yielded a loss of $19,125. Purchased equipment costing $110,375 by paying $58,000 cash and (i.) by signing a long-term note payable for the balance. Borrowed $5,400 cash by signing a short-term note payable. Paid $57,125 cash to reduce the long-term notes payable. Issued 3,900 shares of common stock for $20 cash per share. Declared and paid cash dividends of $52,900. Required: Prepare a complete statement of cash flows using a spreadsheet; report its operating activities using the indirect method. (Enter all amounts as positive values.)

Answer 1

statement of cash flow - indirect method

statement of cash flow shows the changes in the cash position between two periods.Net cash from operating activities is done in the manner below

net profit

adjustments to reconcile net income to net cash

add non-cash expense

sub non-cash revenue

add/sub increase/decrease in current liabilities

add/sub decrease/increase in current assets (non-cash)

add non operating losses

sub non-operating gain

net cash flow from operating activities

statement of cash flow - indirect method

particulars	amount	amount
cash flow from operating activities
net income		109375
adjustments to reconcile net income to net cash from operations
depriciation	34750
loss on sale of equipment	19125
increse in account receivable(64625-86910)	-22285
increse in inventory(265800-296656)	-30856
decrease in prepaid expenses(2175-1350)	825
decrease in account payables(135675-67141)	-68534	-66975
net cash from operating activites		42400
cashflow from investing activites
sale of equipment	25625
purchase of equipment	-58000
net cash used in investing activites		32375
cash flow from financing activites
short term note(cash received)	5400
long term note(cash paid)	-57125
dividends	-52900
issue of stock(3900*20$)	78000
net cash used in financing activites		26625
net increase or decrease in cash    -decrease		16600
add;cash at the beginning of the year		87500
cash at the end of the period		70900

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