Question

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	$	79,900			$	93,500
Accounts receivable		95,970				70,625
Inventory		305,656				271,800
Prepaid expenses		1,410				2,295
Total current assets		482,936				438,220
Equipment		137,500				128,000
Accum. depreciation—Equipment		(46,625	)			(56,000	)
Total assets	$	573,811			$	510,220
Liabilities and Equity
Accounts payable	$	73,141			$	144,675
Short-term notes payable		16,000				10,000
Total current liabilities		89,141				154,675
Long-term notes payable		55,000				68,750
Total liabilities		144,141				223,425
Equity
Common stock, $5 par value		202,750				170,250
Paid-in capital in excess of par, common stock		57,500				0
Retained earnings		169,420				116,545
Total liabilities and equity	$	573,811			$	510,220
FORTEN COMPANY Income Statement For Year Ended December 31, 2017 Sales $ 682,500 Cost of goods sold 305,000 Gross profit 377,500 Operating expenses Depreciation expense $ 40,750 Other expenses 152,400 193,150 Other gains (losses) Loss on sale of equipment (25,125 ) Income before taxes 159,225 Income taxes expense 52,250 Net income $ 106,975 Additional Information on Year 2017 Transactions The loss on the cash sale of equipment was $25,125 (details in b). Sold equipment costing $106,875, with accumulated depreciation of $50,125, for $31,625 cash. Purchased equipment costing $116,375 by paying $70,000 cash and signing a long-term note payable for the balance. Borrowed $6,000 cash by signing a short-term note payable. Paid $60,125 cash to reduce the long-term notes payable. Issued 4,500 shares of common stock for $20 cash per share. Declared and paid cash dividends of $54,100. 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.) FORTEN COMPANY Statement of Cash Flows For Year Ended December 31, 2017 Cash flows from operating activities Adjustments to reconcile net income to net cash provided by operations: Cash flows from investing activities Cash flows from financing activities:    Net increase (decrease) in cash Cash balance at beginning of year Cash balance at end of year

Answer 1

FORTEN COMPANY
Statement of Cash Flows
For Year Ended December 31, 2017
Cash flows from operating activities
Net Income	$106,975
Adjustments to reconcile net income to net cash provided by operations:
Depreciation expense	40,750
Accounts receivable increase	-25,345
Inventory increase	-33,856
Prepaid expense decrease	885
Accounts payable decrease	-71,534
Loss on disposal of equipment	25,125
Net cash provided by operating activities		$43,000
Cash flows from investing activities
Cash paid for equipment	-70,000
Cash received from sale of equipment	31,625
Net cash used in investing activities		-38375
Cash flows from financing activities:
Cash borrowed on short-term note	6,000
Cash paid on long-term note	-60,125
Cash received from issuing stock	90,000
Cash paid for dividends	-54,100
Net cash used in financing activities		-18225
Net increase (decrease) in cash		-13600
Cash balance at beginning of year		93,500
Cash balance at end of year		79900