Question

In: Accounting

Forten Company, a merchandiser, recently completed its calendar-year 2017 operations. For the year, (1) all sales...

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 $ 54,400 $ 76,500
Accounts receivable 70,310 53,625
Inventory 280,156 254,800
Prepaid expenses 1,280 2,005
Total current assets 406,146 386,930
Equipment 154,500 111,000
Accum. depreciation—Equipment (38,125 ) (47,500 )
Total assets $ 522,521 $ 450,430
Liabilities and Equity
Accounts payable $ 56,141 $ 119,175
Short-term notes payable 10,900 6,600
Total current liabilities 67,041 125,775
Long-term notes payable 63,500 51,750
Total liabilities 130,541 177,525
Equity
Common stock, $5 par value 168,750 153,250
Paid-in capital in excess of par, common stock 40,500 0
Retained earnings 182,730 119,655
Total liabilities and equity $ 522,521 $ 450,430

  

FORTEN COMPANY
Income Statement
For Year Ended December 31, 2017
Sales $ 597,500
Cost of goods sold 288,000
Gross profit 309,500
Operating expenses
Depreciation expense $ 23,750
Other expenses 135,400 159,150
Other gains (losses)
Loss on sale of equipment (8,125 )
Income before taxes 142,225
Income taxes expense 28,450
Net income $ 113,775

The loss on the cash sale of equipment was $8,125 (details in b).

Sold equipment costing $55,875, with accumulated depreciation of $33,125, for $14,625 cash.

Purchased equipment costing $99,375 by paying $36,000 cash and signing a long-term note payable for the balance.

Borrowed $4,300 cash by signing a short-term note payable.

Paid $51,625 cash to reduce the long-term notes payable.

Issued 2,800 shares of common stock for $20 cash per share.

Declared and paid cash dividends of $50,700.


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.)

(2) Prepare a complete statement of cash flows using a spreadsheet; report its operating activities using the indirect method. (Enter all amounts as positive values.)

Solutions

Expert Solution

FORTEN COMPANY

Cash Flow From operations

For the ended December 31, 2017

Net Income

$ 113,775.00

Add: Adjustments

Loss on sale of Equipment

$      8,125.00

Depreciation expense

$   23,750.00

Decrease in Accounts Payables

$ -63,034.00

Increase in Accounts receivables

$ -16,685.00

Increase in Inventory

$ -25,356.00

Decrease in Prepaid Expenses

$         725.00

$ -72,475.00

A. Cash Flow from Operating Activities

$    41,300.00

FORTEN COMPANY

Cash Flow Statement

For the ended December 31, 2017

Cash Flow from Operating Activities:

Net Income

$ 113,775.00

Add: Adjustments

Loss on sale of Equipment

$      8,125.00

Depreciation expense

$   23,750.00

Decrease in Accounts Payables

$   63,034.00

Increase in Accounts receivables

$   16,685.00

Increase in Inventory

$   25,356.00

Decrease in Prepaid Expenses

$         725.00

$ 72,475.00

A. Cash Flow from Operating Activities

$    41,300.00

Cash Flow from Investing Activities:

Sale of Equipment

$   14,625.00

Purchase of Equipment

$ 36,000.00

B. Cash Used in Investing Activities

$ 21,375.00

Cash Flow from Financing Activities:

Issue of Common Stock

$   56,000.00

Dividend paid

$   50,700.00

Proceeds from short term notes payable

$     4,300.00

Retirement of long term notes payable

$   51,625.00

C. Cash Used in Financing Activities

$ 42,025.00

Decrease in cash [A-B-C]

$   22,100.00

Add: cash at the beginning of the year

$    76,500.00

Cash at the end of the year

$    54,400.00

Calculation of Equipment purchased.

Gross Opening balance of Equipment account

$ 111,000.00

Less: Original value of Equipment sold during year

$   55,875.00

$   55,125.00

Gross Closing balance of Equipment account

$ 154,500.00

Equipment purchased

$   99,375.00

Consideration in form of long term loan

$   63,375.00

Cash paid

$   36,000.00

Notes—

Only the amount paid in cash for purchase of Equipment will be reported in cash flow statement.

Since Long term loan is is taken other than in cash it will also be excluded from cash flow statement.


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