Question

Forten Company's current year income statement, comparative balance sheets, and additional information follow. 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. FORTEN COMPANY Comparative Balance Sheets December 31 Current Year Prior Year Assets Cash $ 64,900 $ 83,500 Accounts receivable 80,870 60,625 Inventory 290,656 261,800 Prepaid expenses 1,310 2,095 Total current assets 437,736 408,020 Equipment 147,500 118,000 Accum. depreciation—Equipment (41,625 ) (51,000 ) 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 177,750 160,250 Paid-in capital in excess of par, common stock 52,500 0 Retained earnings 177,220 118,345 Total liabilities and equity $ 543,611 $ 475,020 FORTEN COMPANY Income Statement For Current Year Ended December 31 Sales $ 632,500 Cost of goods sold 295,000 Gross profit 337,500 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 Current Year Transactions The loss on the cash sale of equipment was $15,125 (details in b). Sold equipment costing $76,875, with accumulated depreciation of $40,125, for $21,625 cash. Purchased equipment costing $106,375 by paying $50,000 cash and signing a long-term note payable for the balance. Borrowed $5,000 cash by signing a short-term note payable. Paid $55,125 cash to reduce the long-term notes payable. Issued 3,500 shares of common stock for $20 cash per share. Declared and paid cash dividends of $52,100. Required: 1. Prepare a complete statement of cash flows using the indirect method for the current year. (Amounts to be deducted should be indicated with a minus sign.)

Additional Information on Current Year Transactions

1. The loss on the cash sale of equipment was $15,125 (details in b).
2. Sold equipment costing $76,875, with accumulated depreciation of $40,125, for $21,625 cash.
3. Purchased equipment costing $106,375 by paying $50,000 cash and signing a long-term note payable for the balance.
4. Borrowed $5,000 cash by signing a short-term note payable.
5. Paid $55,125 cash to reduce the long-term notes payable.
6. Issued 3,500 shares of common stock for $20 cash per share.
7. Declared and paid cash dividends of $52,100.

Required:
Prepare a complete statement of cash flows using a spreadsheet using the indirect method. (Enter all amounts as positive values.)

Answer 1

FORTEN COMPANY
Statement of Cash Flows
For Year Ended December 31
Cash flows from operating activities
Net Income	110,975
Adjustments to reconcile net income to net cash provided by operations:
Depreciation expense	30,750
Accounts receivable increase	(20,245)
Inventory increase	(28,856)
Prepaid expense decrease	785
Accounts payable decrease	(66,534)
Loss on disposal of equipment	15,125
Net cash provided by operating activities		42,000
Cash flows from investing activities
Cash paid for equipment	(50,000)
Cash received from sale of equipment	21,625
Net cash used in investing activities		(28,375)
Cash flows from financing activities:
Cash borrowed on short-term note	5,000
Cash paid on long-term note	(55,125)
Cash received from issuing stock	70,000
Cash paid for dividends	(52,100)
Net cash used in financing activities		(32,225)
Net increase (decrease) in cash		(18,600)
Cash balance at beginning of year		83,500
Cash balance at end of year		64,900