In: Accounting
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 |
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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 |
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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.
(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.) |
FORTEN COMPANY |
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Cash Flow From operations |
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For the ended December 31, 2017 |
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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 |
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A. Cash Flow from Operating Activities |
$ 41,300.00 |
FORTEN COMPANY |
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Cash Flow Statement |
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For the ended December 31, 2017 |
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Cash Flow from Operating Activities: |
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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 |
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A. Cash Flow from Operating Activities |
$ 41,300.00 |
|
Cash Flow from Investing Activities: |
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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: |
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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.