In: Accounting
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
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 the Year Ended December 31, 2017 | ||
Cash flows from Operating Activities | ||
Net Income | 106975 | |
Adjustments to reconcile net income to net cash flow from operating activities: | ||
Depreciation expense | 40750 | |
Loss on sale of equipment | 25125 | |
Changes in current operating assets and liabilities: | ||
Increase in accounts receivable | -25345 | |
Increase in inventory | -33856 | |
Decrease in prepaid expenses | 885 | |
Decrease in accounts payable | -71534 | -63975 |
Net cash provided by Operating Activities | 43000 | |
Cash flows from Investing Activities | ||
Cash proceed from sale of equipment | 31625 | |
Cash paid for purchase of equipment | -70000 | |
Net cash used in Investing activities | -38375 | |
Cash flows from Financing Activities | ||
Cash borrowed through short-term notes payable | 6000 | |
Cash repaid to long-term notes payable | -60125 | |
Cash proceed from issuance of common stock | 90000 | |
Cash dividend paid | -54100 | |
Net Cash used in Financing Activities | -18225 | |
Net decrease in cash | -13600 | |
Cash balance at beginng of year | 93500 | |
Cash balance at end of year | 79900 |