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	$	61,900			$	81,500
Accounts receivable		77,850				58,625
Inventory		287,656				259,800
Prepaid expenses		1,290				2,055
Total current assets		428,696				401,980
Equipment		149,500				116,000
Accum. depreciation—Equipment		(40,625	)			(50,000	)
Total assets	$	537,571			$	467,980
Liabilities and Equity
Accounts payable	$	61,141			$	126,675
Short-term notes payable		12,400				7,600
Total current liabilities		73,541				134,275
Long-term notes payable		61,000				56,750
Total liabilities		134,541				191,025
Equity
Common stock, $5 par value		178,750				158,250
Paid-in capital in excess of par, common stock		45,500				0
Retained earnings		178,780				118,705
Total liabilities and equity	$	537,571			$	467,980

  

FORTEN COMPANY Income Statement For Year Ended December 31, 2017
Sales				$	622,500
Cost of goods sold					293,000
Gross profit					329,500
Operating expenses
Depreciation expense	$	28,750
Other expenses		140,400			169,150
Other gains (losses)
Loss on sale of equipment					(13,125	)
Income before taxes					147,225
Income taxes expense					35,450
Net income				$	111,775

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 $13,125 (details in b).
2. Sold equipment costing $70,875, with accumulated depreciation of $38,125, for $19,625 cash.
3. Purchased equipment costing $104,375 by paying $46,000 cash and signing a long-term note payable for the balance.
4. Borrowed $4,800 cash by signing a short-term note payable.
5. Paid $54,125 cash to reduce the long-term notes payable.
6. Issued 3,300 shares of common stock for $20 cash per share.
7. Declared and paid cash dividends of $51,700.

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 Current Year Ended December 31
Cash flows from operating activities
Net Income	111775
Adjustments to reconcile net income to net cash provided by operations:
Depreciation expense	28750
Accounts receivable increase	-19225
Inventory increase	-27856
Prepaid expense decrease	765
Accounts payable decrease	-65534
Loss on disposal of equipment	13125
Net cash provided by operating activities		41800
Cash flows from investing activities
Cash paid for equipment	-46000
Cash received from sale of equipment	19625
Net cash used in investing activities		-26375
Cash flows from financing activities:
Cash borrowed on short-term note	4800
Cash paid on long-term note	-54125
Cash received from issuing stock	66000
Cash paid for dividends	-51700
Net cash used in financing activities		-35025
Net increase (decrease) in cash		-19600
Cash balance at beginning of year		81500
Cash balance at end of year		61900