Question

12-3
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	$	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 Year Ended December 31, 2017
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 Year 2017 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.

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.)

Additional Information on Year 2017 Transactions

1. Net income was $114,975.
2. Accounts receivable increased.
3. Inventory increased.
4. Prepaid expenses decreased.
5. Accounts payable decreased.
6. Depreciation expense was $20,750.
7. Sold equipment costing $46,875, with accumulated depreciation of $30,125, for $11,625 cash. This yielded a loss of $5,125.
8. Purchased equipment costing $96,375 by paying $30,000 cash and (i.) by signing a long-term note payable for the balance.
9. Borrowed $4,000 cash by signing a short-term note payable.
10. Paid $50,125 cash to reduce the long-term notes payable.
11. Issued 2,500 shares of common stock for $20 cash per share.
12. Declared and paid cash dividends of $50,100.

Additional Information on Year 2017 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.

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.)

  
Required:
Prepare a complete statement of cash flows using a spreadsheet; report its operating activities using the indirect method. (Enter all amounts as positive values.)
  

Answer 1

FORTEN COMPANY
Statement of Cash Flows (Indirect method)
(in thousands of dollars)
	Amount $
Operating Activities
Net Income	1,14,975
Adjustments:
Non-Cash adjustment:
Depreciation	20,750
Loss on sale of equipment	5,125
Due to changes in Working capital
Due to changes in accounts receivable (50625-65810)	-15,185
Due to changes in Inventories (251800-275656)	-23,856
Due to changes in Prepaid expenses (1875-1250)	625
Due to changes in accounts payable (53141-114675)	-61,534
Due to changes in short-term note payable (10000-6000)	4,000
Net Cash provided (used) by operating activities	44,900
Investing Activities
Purchase of equipment	-96,375
Cash from sale of equipment	11,625
Net cash provided (used) by investing activities	-84,750
Financing Activities
Long-term notes issued to acquire equipment	66,375
Repayment of Long-term notes payable	-50,125
Due to change in common stock (162750+37500-150250)	50,000
Payment of common dividends	-50,100
Net cash provided (used) by investing activities)	16,150
Net increase/decrease in cash	-23,700
Add: Cash balance at the begining of the year	73,500
Cash balance at the end of the year	49,800
FORTEN COMPANY
Statement of Cash Flows (Direct method)
(in thousands of dollars)
	Amount $
Cash flows from operating activities
Cash receipts from customers	567315
Cash paid to suppliers	-394246
Cash borrowed by signing short-term payables	4000
Cash paid for Other expenses	-133025
Cash generated from operations	44044
Income taxes paid	-24250
Net cash from operating activities	44900
Investing Activities
Purchase of equipment	-96,375
Cash from sale of equipment	11,625
Net cash provided (used) by investing activities	-84,750
Financing Activities
Long-term notes issued to acquire equipment	66,375
Repayment of Long-term notes payable	-50,125
Due to change in common stock (162750+37500-150250)	50,000
Payment of common dividends	-50,100
Net cash provided (used) by investing activities)	16,150
Net increase/decrease in cash	-23,700
Add: Cash balance at the begining of the year	73,500
Cash balance at the end of the year	49,800
Cash Receipts from Customers =
Net Sales	582500
Beginning Accounts Receivable	50625
Ending Accounts Receivable	-65810
	567315
Cash Payments to Suppliers =
Purchases (285000-251800+275656)	308856
Ending Inventory	275656
Beginning Inventory	-251800
Beginning Accounts Payable	114675
Ending Accounts Payable	-53141
	394246
Cash Payments for other expenses =
Beginning Prepaid expenses Payable	1875
Ending Prepaid expenses Payable	-1250
Other Expense	132400
	133025