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 $ 75,400 $ 90,500 Accounts receivable 91,440 67,625 Inventory 301,156 268,800 Prepaid expenses 1,380 2,235 Total current assets 469,376 429,160 Equipment 140,500 125,000 Accum. depreciation—Equipment (45,125 ) (54,500 ) Total assets $ 564,751 $ 499,660 Liabilities and Equity Accounts payable $ 70,141 $ 140,175 Short-term notes payable 15,100 9,400 Total current liabilities 85,241 149,575 Long-term notes payable 56,500 65,750 Total liabilities 141,741 215,325 Equity Common stock, $5 par value 196,750 167,250 Paid-in capital in excess of par, common stock 54,500 0 Retained earnings 171,760 117,085 Total liabilities and equity $ 564,751 $ 499,660 FORTEN COMPANY Income Statement For Year Ended December 31, 2017 Sales $ 667,500 Cost of goods sold 302,000 Gross profit 365,500 Operating expenses Depreciation expense $ 37,750 Other expenses 149,400 187,150 Other gains (losses) Loss on sale of equipment (22,125 ) Income before taxes 156,225 Income taxes expense 48,050 Net income $ 108,175 Additional Information on Year 2017 Transactions The loss on the cash sale of equipment was $22,125 (details in b). Sold equipment costing $97,875, with accumulated depreciation of $47,125, for $28,625 cash. Purchased equipment costing $113,375 by paying $64,000 cash and signing a long-term note payable for the balance. Borrowed $5,700 cash by signing a short-term note payable. Paid $58,625 cash to reduce the long-term notes payable. Issued 4,200 shares of common stock for $20 cash per share. Declared and paid cash dividends of $53,500.

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.)

	FORTEN COMPANY Statement of Cash Flows For Year Ended December 31, 2017 Cash flows from operating activities Adjustments to reconcile net income to net cash provided by operations: $0 Cash flows from investing activities 0 Cash flows from financing activities: 0 Net increase (decrease) in cash $0 Cash balance at beginning of year Cash balance at end of year

Answer 1

FORTEN COMPANY
Cash Flow Statement
For the ended December 31, 2017
Cash Flow from Operating Activities:
Net Income		$ 108,175.00
Add: Adjustments
Loss on sale of Equipment	$      22,125.00
Depreciation expense	$      37,750.00
Decrease in Accounts Payables	$    (70,034.00)
Increase in Accounts receivables	$    (23,815.00)
Increase in Inventory	$    (32,356.00)
Decrease in Prepaid Expenses	$            855.00
		$ (65,475.00)
A. Cash Flow from Operating Activities		$    42,700.00
Cash Flow from Investing Activities:
Sale of Equipment	$      28,625.00
Purchase of Equipment	$    (64,000.00)
B. Cash flow from Investing Activities		$ (35,375.00)
Cash Flow from Financing Activities:
Issue of Common Stock	$      84,000.00
Dividend paid	$    (53,500.00)
Proceeds from short term notes payable	$        5,700.00
Retirement of long term notes payable	$    (58,625.00)
C. Cash Flow from Financing Activities		$ (22,425.00)
Increase (Decrease) in cash [A+B+C]		$ (15,100.00)
Add: cash at the beginning of the year		$    90,500.00
Cash at the end of the year		$    75,400.00

Calculation of Equipment purchased.
Gross Opening balance of Equipment account	$    125,000.00
Less: Original value of Equipment sold during year	$      97,875.00
	$      27,125.00
Gross Closing balance of Equipment account	$    140,500.00
Equipment purchased	$    113,375.00
Consideration in form of long term loan	$      64,000.00
Cash paid	$      49,375.00

General notes for cash flow

Cash is increased when Current liability increase or Current asset Decrease.

Cash is Decreased when Current liability Decrease or Current asset Increase.

Depreciation or loss on sale of any asset is a non cash expense hence it will be added to net income to get operating cash.

Asset purchased for cash will be included in cash flow.