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	$	70,900			$	87,500
Accounts receivable		86,910				64,625
Inventory		296,656				265,800
Prepaid expenses		1,350				2,175
Total current assets		455,816				420,100
Equipment		143,500				122,000
Accum. depreciation—Equipment		(43,625	)			(53,000	)
Total assets	$	555,691			$	489,100
Liabilities and Equity
Accounts payable	$	67,141			$	135,675
Short-term notes payable		14,200				8,800
Total current liabilities		81,341				144,475
Long-term notes payable		58,000				62,750
Total liabilities		139,341				207,225
Equity
Common stock, $5 par value		190,750				164,250
Paid-in capital in excess of par, common stock		51,500				0
Retained earnings		174,100				117,625
Total liabilities and equity	$	555,691			$	489,100

  

FORTEN COMPANY Income Statement For Year Ended December 31, 2017
Sales				$	652,500
Cost of goods sold					299,000
Gross profit					353,500
Operating expenses
Depreciation expense	$	34,750
Other expenses		146,400			181,150
Other gains (losses)
Loss on sale of equipment					(19,125	)
Income before taxes					153,225
Income taxes expense					43,850
Net income				$	109,375

Problem 12-5AB Direct: Statement of cash flows LO P1, P3, P5

Additional Information on Year 2017 Transactions

The loss on the cash sale of equipment was $19,125 (details in b).

Sold equipment costing $88,875, with accumulated depreciation of $44,125, for $25,625 cash.

Purchased equipment costing $110,375 by paying $58,000 cash and signing a long-term note payable for the balance.

Borrowed $5,400 cash by signing a short-term note payable.

Paid $57,125 cash to reduce the long-term notes payable.

Issued 3,900 shares of common stock for $20 cash per share.

Declared and paid cash dividends of $52,900.

Required:
Prepare a complete statement of cash flows; report its operating activities according to the direct method. (Amounts to be deducted should be indicated with a minus sign.)
  

Answer 1

FORTEN COMPANY
STATEMENT OF CASH FLOWS FOR YEAR ENDED DEC 31, 2017
Cash flow form operating activities					Amount in figure of $
Net income						109375
Adjustment
Depreciation					34750
loss on sale of equipment					19125	53875
						163250
changes in working capital
account receviable increase					-22285
inventory increase					-30856
prepaid exp deccrease					825
accounts payable decerease					-68534
short term notes payable					5400	-115450
net cash flow from operation activities (1)						47800
Cash flow from investing activities(2)
sale of equipment					25625
purchase of equipment					-58000
net cash flow from investing activities						-32375
Cash flow from financing activities (3)
issue of shares (3900*20)					78000
long term notes paid					-57125
Dividend paid					-52900	-32025
Net increase/decrease in cash & cash equivalent(1)+(2)+(3)						-16600
Cash & cash equivalent at beginning of period						87500
Cash & cash equivalent at end of period						70900
Working note
Equipment
closing balance					143500
Add: sale of equipment					88875
					232375
less: opening balance of equipment					122000
purchase value of equipment					110375
less: cash paid for purcahse					58000
long term notes taken					52375
long term note payable
closing balance of long term note					58000
add: paid during the year					57125
					115125
less: opening balance of long term notes payable					62750
equipment balance					52375