Question

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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	$	75,400			$	90,500
Accounts receivable		91,440				67,625
Inventory		301,156				268,800
Prepaid expenses		1,380				2,235
Total current assets		469,376				429,160
Equipment		140,500				125,000
Accum. depreciation—Equipment		(45,125	)			(54,500	)
Total assets	$	564,751			$	499,660
Liabilities and Equity
Accounts payable	$	70,141			$	140,175
Short-term notes payable		15,100				9,400
Total current liabilities		85,241				149,575
Long-term notes payable		56,500				65,750
Total liabilities		141,741				215,325
Equity
Common stock, $5 par value		196,750				167,250
Paid-in capital in excess of par, common stock		54,500				0
Retained earnings		171,760				117,085
Total liabilities and equity	$	564,751			$	499,660

  

FORTEN COMPANY Income Statement For Year Ended December 31, 2017
Sales				$	667,500
Cost of goods sold					302,000
Gross profit					365,500
Operating expenses
Depreciation expense	$	37,750
Other expenses		149,400			187,150
Other gains (losses)
Loss on sale of equipment					(22,125	)
Income before taxes					156,225
Income taxes expense					48,050
Net income				$	108,175
Additional Information on Year 2017 Transactions The loss on the cash sale of equipment was $22,125 (details in b). Sold equipment costing $97,875, with accumulated depreciation of $47,125, for $28,625 cash. Purchased equipment costing $113,375 by paying $64,000 cash and signing a long-term note payable for the balance. Borrowed $5,700 cash by signing a short-term note payable. Paid $58,625 cash to reduce the long-term notes payable. Issued 4,200 shares of common stock for $20 cash per share. Declared and paid cash dividends of $53,500. 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.)

Answer 1

Cash flow Statement:
Cash flows from Operating activities:
Net income for the year				108175
Adjustment required fro reconciliation
Depreciation expense				37750
Loss on sale of equipment				22125
Increase in Accounts receivable				-23815
Increasse in Inventory				-32356
Decrease in Pprepaid expense				855
Decrease in Accounts payable				-70034
Net cash provided from operating activities					42700
Cash flows from Investing activities:
Sale of equipment				28625
Purchase of Equipment				-64000
Net cash used in Investing activities					-35375
Cash flows from Financing activities:
Borrowings from short term note payable				5700
Repayment of long term note payable				-58625
Dividend paid				-53500
Common Stock issued (4200*20)				84000
Net cash used in Financing activities					-22425
Net decrease in cash					-15100
Beginning Balance n cash					90500
Ending Balance in cash					75400