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		$	58,900					$	79,500
Accounts receivable			74,830						56,625
Inventory			284,656						257,800
Prepaid expenses			1,270						2,015
Total current assets			419,656						395,940
Equipment			151,500						114,000
Accum. depreciation—Equipment			(39,625	)					(49,000	)
Total assets		$	531,531					$	460,940
Liabilities and Equity
Accounts payable		$	59,141					$	123,675
Short-term notes payable			11,800						7,200
Total current liabilities			70,941						130,875
Long-term notes payable			62,000						54,750
Total liabilities			132,941						185,625
Equity
Common stock, $5 par value			171,750						156,250
Paid-in capital in excess of par, common stock			46,500						0
Retained earnings			180,340						119,065
Total liabilities and equity		$	531,531					$	460,940

  

FORTEN COMPANY Income Statement For Current Year Ended December 31
Sales				$	612,500
Cost of goods sold					291,000
Gross profit					321,500
Operating expenses
Depreciation expense	$	26,750
Other expenses		138,400			165,150
Other gains (losses)
Loss on sale of equipment					(11,125	)
Income before taxes					145,225
Income taxes expense					32,650
Net income				$	112,575

Additional Information on Current Year Transactions

1. The loss on the cash sale of equipment was $11,125 (details in b).
2. Sold equipment costing $64,875, with accumulated depreciation of $36,125, for $17,625 cash.
3. Purchased equipment costing $102,375 by paying $42,000 cash and signing a long-term note payable for the balance.
4. Borrowed $4,600 cash by signing a short-term note payable.
5. Paid $53,125 cash to reduce the long-term notes payable.
6. Issued 3,100 shares of common stock for $20 cash per share.
7. Declared and paid cash dividends of $51,300.

	FORTEN COMPANY Statement of Cash Flows For Current Year Ended December 31 Cash flows from operating activities Adjustments to reconcile net income to net cash provided by operations: $0 Cash flows from investing activities 0 Cash flows from financing activities: 0 Net increase (decrease) in cash $0 Cash balance at December 31, prior year Cash balance at December 31, current year $0

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		112575
Adjustments to reconcile net income to net cash provided by operating activities
Adjustment for non cash effects
Depreciation expenses		26750
Loss on sale of equipment		11125
Change in operating assets & liabilities
Increase in accounts receivable		-18205
Increase in inventory		-26856
Decrease in prepaid expenses		745
Decrease in accounts payable		-64534
Net cash flow from operating activities (a)		41600
Cash Flow from Investing activities
New equipment purchased		-42000
Equipment sold		17625
Net cash Flow from Investing activities (b)		-24375
Cash Flow from Financing activities
Cash dividends paid		-51300
Common stock issued		62000
Short term note issued		4600
Long term notes paid		-53125
Net cash Flow from Financing activities (c)		-37825
Net Change in cash c=a+b+c		-20600
Beginning cash balance		79500
Closing cash balance		58900
Schedule of non cash investing & financing activities
Issuance of long term note for equipment	($102375-$42000)	60375