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		$	78,400					$	92,500
Accounts receivable			94,460						69,625
Inventory			304,156						270,800
Prepaid expenses			1,400						2,275
Total current assets			478,416						435,200
Equipment			138,500						127,000
Accum. depreciation—Equipment			(46,125	)					(55,500	)
Total assets		$	570,791					$	506,700
Liabilities and Equity
Accounts payable		$	72,141					$	143,175
Short-term notes payable			15,700						9,800
Total current liabilities			87,841						152,975
Long-term notes payable			55,500						67,750
Total liabilities			143,341						220,725
Equity
Common stock, $5 par value			191,250						169,250
Paid-in capital in excess of par, common stock			66,000						0
Retained earnings			170,200						116,725
Total liabilities and equity		$	570,791					$	506,700

  

FORTEN COMPANY Income Statement For Current Year Ended December 31
Sales				$	677,500
Cost of goods sold					304,000
Gross profit					373,500
Operating expenses
Depreciation expense	$	39,750
Other expenses		151,400			191,150
Other gains (losses)
Loss on sale of equipment					(24,125	)
Income before taxes					158,225
Income taxes expense					50,850
Net income				$	107,375

Additional Information on Current Year Transactions

1. The loss on the cash sale of equipment was $24,125 (details in b).
2. Sold equipment costing $103,875, with accumulated depreciation of $49,125, for $30,625 cash.
3. Purchased equipment costing $115,375 by paying $68,000 cash and signing a long-term note payable for the balance.
4. Borrowed $5,900 cash by signing a short-term note payable.
5. Paid $59,625 cash to reduce the long-term notes payable.
6. Issued 4,400 shares of common stock for $20 cash per share.
7. Declared and paid cash dividends of $53,900.

Answer 1

Answer-

FORTEN COMPANY
STATEMENT OF CASH FLOWS (USING INDIRECT METHOD)
FOR THE YEAR ENDED 31
Particulars		Amount
		$
Cash flow from operating activities
Net Income		107375
Adjustments to reconcile net income to net cash provided by operating activities
Adjustment for non cash effects
Depreciation expenses		39750
Loss on sale of equipment		24125
Change in operating assets & liabilities
Increase in accounts receivable		-24835
Increase in inventory		-33356
Decrease in prepaid expenses		875
Decrease in accounts payable		-71034
Net cash flow from operating activities (a)		42900
Cash Flow from Investing activities
New equipment purchased		-68000
Equipment sold		30625
Net cash Flow from Investing activities (b)		-37375
Cash Flow from Financing activities
Cash dividends paid		-53900
Common stock issued		88000
Short term note issued		5900
Long term notes paid		-59625
Net cash Flow from Financing activities (c)		-19625
Net Change in cash c=a+b+c		-14100
Beginning cash balance		92500
Closing cash balance		78400
Schedule of non cash investing & financing activities
Issuance of long term note for equipment	($115375-$68000)	47375