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 $ 97,680 $ 74,000 Accounts receivable 65,860 57,000 Inventory 276,000 252,000 Prepaid expenses 1,250 1,700 Total current assets 440,790 384,700 Equipment 158,050 107,000 Accum. depreciation—Equipment (42,375) (52,000) Total assets $ 556,465 $ 439,700 Liabilities and Equity Accounts payable $ 97,000 $ 114,000 Short-term notes payable 10,000 8,000 Total current liabilities 107,000 122,000 Long-term notes payable 64,165 48,500 Total liabilities 171,165 170,500 Equity Common stock, $5 par value 162,750 150,000 Paid-in capital in excess of par, common stock 38,250 0 Retained earnings 184,300 119,200 Total liabilities and equity $ 556,465 $ 439,700 FORTEN COMPANY Income Statement For Year Ended December 31, 2015 Sales $ 585,000 Cost of goods sold 284,000 Gross profit 301,000 Operating expenses Depreciation expense $ 20,000 Other expenses 132,400 152,400 Other gains (losses) Loss on sale of equipment (5,250) Income before taxes 143,350 Income taxes expense 24,250 Net income $ 119,100 Additional Information on Year 2015 Transactions a. The loss on the cash sale of equipment was $5,250 (details in b). b. Sold equipment costing $48,115, with accumulated depreciation of $29,625, for $13,240 cash. c. Purchased equipment costing $99,165 by paying $30,000 cash and signing a long-term note payable for the balance. d. Borrowed $2,000 cash by signing a short-term note payable. e. Paid $53,500 cash to reduce the long-term notes payable. f. Issued 2,550 shares of common stock for $20 cash per share. g. Declared and paid cash dividends of $54,000. Required: Prepare a complete statement of cash flows; report its operating activities according to the direct method. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

FORTEN COMPANY Statement of Cash Flows For Year Ended December 31, 2015
Cash flows from operating activities
Cash received from customers	576140
Cash paid for merchandise	-325000
Cash paid for other expenses	-131950
Cash paid for income taxes	-24250
Net cash provided by operating activities	94940
Cash flows from investing activities
Cash received from sale of equipment	13240
Cash paid for equipment	-30000
Net cash used in investing activities	-16760
Cash flows from financing activities
Cash borrowed on short-term note	2000
Cash paid on long-term note	-53500
Cash received from issuing stock (2,550 x $20)	51000
Cash paid for dividends	-54000
Net cash used in financing activities	-54500
Net increase in cash	23680
Cash balance at December 31, 2014	74000
Cash balance at December 31, 2015	97680
Cash received from customers
Sales - Increase in receivables = 585000 - (65860 - 57000) =		576140
Cash paid for merchandise =
cost of goods sold + Increase in inventory + Decrease in payables =
284000 + (276000-252000)+(114000-97000)=
325000
Cash paid for other expenses
Other expenses - Decrease in prepaid expenses = $132,400 - ($1700 - $1,250)
131950