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

Cash	64,900	83,500
Accounts Recievable	80,870	60,625
Inventory	290,656	261,800
Prepaid Expenses	1,310	2,095
Total Current Assests	437,736	408,020
Equipment	147,500	118,000
Accum. depreciation—Equipment	(41,625)	(57,000)
Total Assets	543,611	475,020
Liabilities and Equity
Accounts Payable	63,141	129,675
Short-term notes payable	13,000	8,000
Total current liabilities	76,141	137,675
Long-term notes payable	60,000	58,750
Total liabilities	136,141	196,425
Equity
Common stock, $5 par value	182,750	160,250
Paid-in capital in excess of par, common stock	475,000	0
Retained earnings	177,220	118,345
Total liabilities and equity	543,611	475,020

FORTEN COMPANY
Income Statement
For Year Ended December 31, 2017

		632,500
Sales		295,000
Cost of goods sold		337,500
Gross profit
Operating expenses
Depreciation expense	30,750
Other expenses	142,400	173,150
Other gains (losses)
Loss on sale of equipment		(15,125)
Income before taxes		149,225
Income taxes expense		38,250
Net income		110,975

Additional Information on Year 2017 Transactions

a. The loss on the cash sale of equipment was $15,125 (details in b).

b. Sold equipment costing $76,875, with accumulated depreciation of $40,125, for $21,625 cash.

c. Purchased equipment costing $106,375 by paying $50,000 cash and signing a long-term note payable for the balance.

d. Borrowed $5,000 cash by signing a short-term note payable.

e. Paid $55,125 cash to reduce the long-term notes payable.

f. Issued 3,500 shares of common stock for $20 cash per share.

g. Declared and paid cash dividends of $52,100.

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