Question

Required information

Use the following information for the Problems 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	$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	186,750	162,250
Paid-in capital in excess of par, common stock	49,500	0
Retained earnings	175,660	117,985
Total liabilities and equity	$549,651	$482,060

  

FORTEN COMPANY
Income Statement
For Year Ended December 31, 2017

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 Year 2017 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.

Problem 16-3A Indirect: Statement of cash flows LO A1, P1, P2, P3

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

Cash Flow Statement is as prepared below:

Forten Company
Statement of Cash Flows (Indirect Method)
For Year Ending Dec. 31, 2017
Cash Flow from Direct Operating Activities
	Amount ($)
Cash Flows From Operating Activities
Net Income	110,175
Adjustments to reconcile net income to
Depreciation Expense	32,750
Loss on sale of equipment	17,125
Increase in Accounts Recievable	-21,265
Increase in Inventory	-29,856
Decrease in Prepaid Expense	805
Decrease in accounts payable	-67,534
Increase in short term notes payable	5,200
Net Cash Provided by Operating Activities	47,400
Cash flows from investing:
Sale of Equipment	23,625
Purchase of Equipment	-54,000
Net cash flow - investing activities:	-30,375
Cash flows from financing:
Cash paid for Dividends:	-52,500
Common Stock issued	74,000
Long term notes paid	-56,125
Net cash flow financing activities:	-34,625
Net increase in Cash balance	-17,600
Cash as of January 1,2017	85,500
Cash as of December 31, 2017	67,900

Working Notes:

Long term notes payable					Account Receivable
Particulars	Amount ($)	Particulars	Amount ($)		Particulars	Amount ($)	Particulars	Amount ($)
Cash	56,125	opening	60,750		opening	62,625
		Equipment	54,375		Cash	21,265
	56,125		115,125			83,890		0
		closing	59,000		closing	83,890
Common Stock
Particulars	Amount ($)	Particulars	Amount ($)		Inventory
		opening	162,250		Particulars	Amount ($)	Particulars	Amount ($)
		Cash	24,500		opening	263,800
	0		186,750		Cash	29,856
		closing	186,750			293,656		0
Paid in capital					closing	293,656
Particulars	Amount ($)	Particulars	Amount ($)
		opening	0		Prepaid Expense
		Cash	49,500		Particulars	Amount ($)	Particulars	Amount ($)
	0		49500		opening	2,135	Cash	805
		closing	49,500
Retained earnings						2,135		805
Particulars	Amount ($)	Particulars	Amount ($)		closing	1,330
		opening	117,985
Dividend	52,500	Net income	110,175		Accounts payable
	52,500		228,160		Particulars	Amount ($)	Particulars	Amount ($)
		closing	175,660		Cash	67,534	opening	132,675
Equipment
Particulars	Amount ($)	Particulars	Amount ($)					132,675
opening	120,000	Acc dep	42,125				closing	65,141
Cash	54,000	Cash	23,625
Long term note payable	54,375	Loss on sale of equipment	17,125		Short term notes payable
	228,375		82,875		Particulars	Amount ($)	Particulars	Amount ($)
closing	145,500						opening	8,400
Acc Dep							Cash	5,200
Particulars	Amount ($)	Particulars	Amount ($)					13,600
Equipment	42,125	opening	52,000				closing	13,600
		Dep	32,750
	42125		84,750
		closing	42,625