Question

In: Accounting

Use the following information for the Problems below. Forten Company, a merchandiser, recently completed its calendar-year...

Use the following information for the Problems below.

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 $ 60,400 $ 80,500
Accounts receivable 76,340 57,625
Inventory 286,156 258,800
Prepaid expenses 1,280 2,035
Total current assets 424,176 398,960
Equipment 150,500 115,000
Accum. depreciation—Equipment (40,125 ) (49,500 )
Total assets $ 534,551 $ 464,460
Liabilities and Equity
Accounts payable $ 60,141 $ 125,175
Short-term notes payable 12,100 7,400
Total current liabilities 72,241 132,575
Long-term notes payable 61,500 55,750
Total liabilities 133,741 188,325
Equity
Common stock, $5 par value 176,750 157,250
Paid-in capital in excess of par, common stock 44,500 0
Retained earnings 179,560 118,885
Total liabilities and equity $ 534,551 $ 464,460
FORTEN COMPANY
Income Statement
For Year Ended December 31, 2017
Sales $ 617,500
Cost of goods sold 292,000
Gross profit 325,500
Operating expenses
Depreciation expense $ 27,750
Other expenses 139,400 167,150
Other gains (losses)
Loss on sale of equipment (12,125 )
Income before taxes 146,225
Income taxes expense 34,050
Net income $ 112,175


Additional Information on Year 2017 Transactions

The loss on the cash sale of equipment was $12,125 (details in b).

Sold equipment costing $67,875, with accumulated depreciation of $37,125, for $18,625 cash.

Purchased equipment costing $103,375 by paying $44,000 cash and signing a long-term note payable for the balance.

Borrowed $4,700 cash by signing a short-term note payable.

Paid $53,625 cash to reduce the long-term notes payable.

Issued 3,200 shares of common stock for $20 cash per share.

Declared and paid cash dividends of $51,500.

Problem 16-5AB Direct: Statement of cash flows LO P1, P3, P5

Required:
Prepare a complete statement of cash flows; report its operating activities according to the direct method.

Solutions

Expert Solution

Cash flow Statement:
Cash flows from Operating activities:
Cash received from Accounts receivable (617500+57625-76340) 598785
Cash paid to suppliers (292000+286156-258800+125175-60141) -384390
cash paid for expense (139400+1280-2035) -138645
Income tax expense paid -34050
Nnet cash provided from Operatin activities 41700
Cash flows from Investing activities:
Sale of Eqquipment 18625
Purchase of equipment -44000
Net cash used in Investing activities -25375
Cash flows from Financing activities:
Borrowing from Short term notes payable 4700
Repayment of Long term notes payable -53625
Common Stock issued (3200 shares @20) 64000
Dividend paid -51500
Net cash used in financing activities -36425
Net decrease in cash -20100
Beginning Balance in cash 80500
Ending Balance in cash 60400

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