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.

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.)

Answer 1

Cash flow statement:

Calculation of Cash Flow from Operative Activities	Amount	Amount
Cash flow before tax and extra ordinary items(i.e. Net profit+tax)	145225
Depreciation	26750
Loss on sale of Equipment	11125
Cash flow before adj. of Working capital	183100
(+/-) Adj for working capital changes:
Increase in Account receivable	-18205
Increase in inventory	-26856
Decrease in Prepaid expenses	745
Decrease in Account receivable	-64534
Increase in Short term notes payable	4600
Cash flow before tax and extra ordinary items	78850
(-) Tax	-32650
Cash Flow from Operative Activities		46200
Calculation of Cash Flow from Investing Activities
Sale of Equipment	17625
(-)Purchase of equipment for cash	-42000
Cash Flow from Investing Activities		-24375
Calculation of Cash Flow from Financing Activities
Long term Notes Repaid	-53125
Issued shares(3100*20)	62000
Paid Dividend	-51300	-42425
Total cash Outflow		-20600
(+)Opening Balance of cash		79500
Closing balance of cash		58900

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