Question

Chapter 12 Question 2

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	$	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		174,750				156,250
Paid-in capital in excess of par, common stock		43,500				0
Retained earnings		180,340				119,065
Total liabilities and equity	$	531,531			$	460,940

  

FORTEN COMPANY Income Statement For Year Ended December 31, 2017
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 Year 2017 Transactions

The loss on the cash sale of equipment was $11,125 (details in b).

Sold equipment costing $64,875, with accumulated depreciation of $36,125, for $17,625 cash.

Purchased equipment costing $102,375 by paying $42,000 cash and signing a long-term note payable for the balance.

Borrowed $4,600 cash by signing a short-term note payable.

Paid $53,125 cash to reduce the long-term notes payable.

Issued 3,100 shares of common stock for $20 cash per share.

Declared and paid cash dividends of $51,300.

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 COMPANYStatement of Cash FlowsFor Year Ended December 31, 2017Cash flows from operating activitiesAdjustments to reconcile net income to net cash provided by operations:Cash flows from investing activitiesCash flows from financing activities:Net increase (decrease) in cashCash balance at beginning of yearCash balance at end of year

Answer 1