Question

In: Accounting

Forten Company, a merchandiser, recently completed its calendar-year 2017 operations. For the year, (1) all sales...

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

  1. The loss on the cash sale of equipment was $25,125 (details in b).
  2. Sold equipment costing $106,875, with accumulated depreciation of $50,125, for $31,625 cash.
  3. Purchased equipment costing $116,375 by paying $70,000 cash and signing a long-term note payable for the balance.
  4. Borrowed $6,000 cash by signing a short-term note payable.
  5. Paid $60,125 cash to reduce the long-term notes payable.
  6. Issued 4,500 shares of common stock for $20 cash per share.
  7. 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.)

Solutions

Expert Solution

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

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