Question

Required information 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 $51,400 $74,500 Accounts receivable 67,310 51,625 Inventory 277,156 252,800 Prepaid expenses 1,300 2,025 Total current assets 397,166 380,950 Equipment 156,500 109,000 Accum. depreciation—Equipment (37,125) (46,500) Total assets $516,541 $443,450 Liabilities and Equity Accounts payable $54,141 $116,175 Short-term notes payable 10,300 6,200 Total current liabilities 64,441 122,375 Long-term notes payable 64,500 49,750 Total liabilities 128,941 172,125 Equity Common stock, $5 par value 164,750 151,250 Paid-in capital in excess of par, common stock 38,500 0 Retained earnings 184,350 120,075 Total liabilities and equity $516,541 $443,450 FORTEN COMPANY Income Statement For Year Ended December 31, 2017 Sales $587,500 Cost of goods sold 286,000 Gross profit 301,500 Operating expenses Depreciation expense $21,750 Other expenses 133,400 155,150 Other gains (losses) Loss on sale of equipment (6,125) Income before taxes 140,225 Income taxes expense 25,650 Net income $114,575 Additional Information on Year 2017 Transactions The loss on the cash sale of equipment was $6,125 (details in b). Sold equipment costing $49,875, with accumulated depreciation of $31,125, for $12,625 cash. Purchased equipment costing $97,375 by paying $32,000 cash and signing a long-term note payable for the balance. Borrowed $4,100 cash by signing a short-term note payable. Paid $50,625 cash to reduce the long-term notes payable. Issued 2,600 shares of common stock for $20 cash per share. Declared and paid cash dividends of $50,300. 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

FORTEN COMPANY
Statement of Cash Flows
For Year Ended December 31, 2017
Cash flows from operating activities
Net Income	$1,14,575
Adjustments to reconcile net income to net cash provided by operations:
Depreciation expense	$21,750
Accounts receivable increase	-$15,685
Inventory increase	-$24,356
Prepaid expense decrease	$725
Accounts payable decrease	-$62,034
Loss on disposal of equipment	$6,125
Net cash provided by operating activities (a)		$41,100
Cash flows from investing activities
Cash paid for equipment (109000-49875-156500)	-$32,000
Cash received from sale of equipment	$12,625
Net cash used in investing activities (b)		-$19,375
Cash flows from financing activities:
Cash borrowed on short-term note	$4,100
Cash paid on long-term note (49750+(97375-32000)	-$50,625
Cash received from issuing stock	$52,000
Cash paid for dividends	-$50,300
Net cash used in financing activities ( C)		-$44,825
Net increase (decrease) in cash ( a+b+c)		-$23,100
Cash balance at beginning of year		$74,500
Cash balance at end of year		$51,400