Question

Forten Company's current year income statement, comparative balance sheets, and additional information follow. 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.

FORTEN COMPANY Comparative Balance Sheets December 31
	Current Year						Prior Year
Assets
Cash		$	49,800					$	73,500
Accounts receivable			65,810						50,625
Inventory			275,656						251,800
Prepaid expenses			1,250						1,875
Total current assets			392,516						377,800
Equipment			157,500						108,000
Accum. depreciation—Equipment			(36,625	)					(46,000	)
Total assets		$	513,391					$	439,800
Liabilities and Equity
Accounts payable		$	53,141					$	114,675
Short-term notes payable			10,000						6,000
Total current liabilities			63,141						120,675
Long-term notes payable			65,000						48,750
Total liabilities			128,141						169,425
Equity
Common stock, $5 par value			162,750						150,250
Paid-in capital in excess of par, common stock			37,500						0
Retained earnings			185,000						120,125
Total liabilities and equity		$	513,391					$	439,800

  

FORTEN COMPANY Income Statement For Current Year Ended December 31
Sales				$	582,500
Cost of goods sold					285,000
Gross profit					297,500
Operating expenses
Depreciation expense	$	20,750
Other expenses		132,400			153,150
Other gains (losses)
Loss on sale of equipment					(5,125	)
Income before taxes					139,225
Income taxes expense					24,250
Net income				$	114,975

Additional Information on Current Year Transactions

1. The loss on the cash sale of equipment was $5,125 (details in b).
2. Sold equipment costing $46,875, with accumulated depreciation of $30,125, for $11,625 cash.
3. Purchased equipment costing $96,375 by paying $30,000 cash and signing a long-term note payable for the balance.
4. Borrowed $4,000 cash by signing a short-term note payable.
5. Paid $50,125 cash to reduce the long-term notes payable.
6. Issued 2,500 shares of common stock for $20 cash per share.
7. Declared and paid cash dividends of $50,100.

Answer 1

FORTEN COMPANY
Statement of Cash Flows
For Year Ended December 31
Cash flows from operating activities
Net Income	114,975
Adjustments to reconcile net income to net cash provided by operations:
Depreciation expense	20,750
Accounts receivable increase	(15,185)
Inventory increase	(23,856)
Prepaid expense decrease	625
Accounts payable decrease	(61,534)
Loss on disposal of equipment	5,125
Net cash provided by operating activities		40,900
Cash flows from investing activities
Cash paid for equipment	(30,000)
Cash received from sale of equipment	11,625
Net cash used in investing activities		(18,375)
Cash flows from financing activities:
Cash borrowed on short-term note	4,000
Cash paid on long-term note	(50,125)
Cash received from issuing stock	50,000
Cash paid for dividends	(50,100)
Net cash used in financing activities		(46,225)
Net increase (decrease) in cash		(23,700)
Cash balance at beginning of year		73,500
Cash balance at end of year		49,800