Question

Forten Company, a merchandiser, recently completed its calendar-year 2015 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, 2015 and 2014
	2015			2014
Assets
Cash	$	70,944		$	72,000
Accounts receivable		79,125			61,125
Inventory		259,906			230,800
Prepaid expenses		1,600			2,100
Total current assets		411,575			366,025
Equipment		162,500			120,000
Accum. depreciation—Equipment		(53,800)			(60,000)
Total assets	$	520,275		$	426,025
Liabilities and Equity
Accounts payable	$	58,075		$	111,200
Short-term notes payable		10,000			6,000
Total current liabilities		68,075			117,200
Long-term notes payable		24,175			43,000
Total liabilities		92,250			160,200
Equity
Common stock, $5 par value		167,500			150,000
Paid-in capital in excess of par, common stock		52,500			0
Retained earnings		208,025			115,825
Total liabilities and equity	$	520,275		$	426,025

FORTEN COMPANY Income Statement For Year Ended December 31, 2015
Sales				$	635,000
Cost of goods sold					306,000
Gross profit					329,000
Operating expenses
Depreciation expense	$	20,000
Other expenses		128,300			148,300
Other gains (losses)
Loss on sale of equipment					(4,500)
Income before taxes					176,200
Income taxes expense					31,000
Net income				$	145,200

Additional Information on Year 2015 Transactions
a.	The loss on the cash sale of equipment was $4,500 (details in b).
b.	Sold equipment costing $45,800, with accumulated depreciation of $26,200, for $15,100 cash.
c.	Purchased equipment costing $88,300 by paying $63,000 cash and signing a long-term note payable for the balance.
d.	Borrowed $4,000 cash by signing a short-term note payable.
e.	Paid $44,125 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 $53,000.

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

Cash flow Statement:
Cash flowws from operating activities:
Net income for the year				145200
Adjustment requirred for reconciliation:
Depreciation expense				20000
Loss on sale of equipment				4500
Increase in Acounts receivabble				-18000
Increase in Inventory				-29106
Decrease in Prepaid expense				500
Decrease in Accounts payable				-53125
Net cash provided from Operating activities					69,969
Cash flows from Investing activiities:
Sale of equipment				15100
Purchase of equipment				-63000
Net cash used for investting activities					-47,900.00
Cash flows from Financing activities:
Borrowing from short term notes				4000
Repayment of long term notes				-44125
Issue of shares				70000
Dividend paid				-53000
Net cash used in Financing activities					-23125
Net increase in cash					-1056
Beginning balance of cash					72000
Ending balance of cash					70944