Forten Company, a merchandiser, recently completed its calendar-year 2017 operat
ID: 2333680 • Letter: F
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.
Additional Information on Year 2017 Transactions
The loss on the cash sale of equipment was $18,125 (details in b).
Sold equipment costing $85,875, with accumulated depreciation of $43,125, for $24,625 cash.
Purchased equipment costing $109,375 by paying $56,000 cash and signing a long-term note payable for the balance.
Borrowed $5,300 cash by signing a short-term note payable.
Paid $56,625 cash to reduce the long-term notes payable.
Issued 3,800 shares of common stock for $20 cash per share.
Declared and paid cash dividends of $52,700.
Prepare a complete statement of cash flows; report its operating activities according to the direct method
FORTEN COMPANYComparative Balance Sheets
December 31, 2017 and 2016 2017 2016 Assets Cash $69,400 $86,500 Accounts receivable 85,400 63,625 Inventory 295,156 264,800 Prepaid expenses 1,340 2,155 Total current assets 451,296 417,080 Equipment 144,500 121,000 Accum. depreciation—Equipment (43,125) (52,500) Total assets $552,671 $485,580 Liabilities and Equity Accounts payable $66,141 $134,175 Short-term notes payable 13,900 8,600 Total current liabilities 80,041 142,775 Long-term notes payable 58,500 61,750 Total liabilities 138,541 204,525 Equity Common stock, $5 par value 188,750 163,250 Paid-in capital in excess of par, common stock 50,500 0 Retained earnings 174,880 117,805 Total liabilities and equity $552,671 $485,580
Explanation / Answer
FORTEN COMPANY
Cash flow Statement
For the year ended December 31 2017
Cash Flow from Operating Activities:
Cash collected from customers
$ 625,725.00
Less: Cash Payments for
Suppliers
$ (396,390.00)
Operating Expenses
$ (144,585.00)
Income tax Expense
$ (42,450.00)
$ (583,425.00)
A. Cash Outflow from Operating Activities
$ 42,300.00
Cash flows from Investing activities
Sale of Equipment
$ 24,625.00
Purchase of Equipment
$ (56,000.00)
B.Net cash used by investing activities
$ (31,375.00)
Cash flows from Financing activities
Proceeds from short term notes payable
$ 5,300.00
Payment for long term notes payable
$ (56,625.00)
Proceeds from issue of Shares
$ 76,000.00
Payment of Dividend
$ (52,700.00)
Proceeds from Bonds Issue
C. Net cash Used in financing activities
$ (28,025.00)
(A+B+C) Net increase (Decrease) in cash
$ (17,100.00)
Add: Beginning cash Balance
$ 86,500.00
Ending Cash Balance
$ 69,400.00
Working note 1
Cash collected from customers
sales
$ 647,500.00
Less: Increase in Accounts receivable
$ (21,775.00)
Cash collected from customers
$ 625,725.00
Working note 2) Cash paid to Suppliers
Cost of goods sold
$ 298,000.00
Add: Increase in Inventory
$ 30,356.00
Net Purchases
$ 328,356.00
Add - Decrease in accounts Payable
$ 68,034.00
Amount paid to supplier
$ 396,390.00
Working note 3) Cash paid for Operating Activities
Total Operating Expenses
$ 179,150.00
Less: decrease in Prepaid Expenses
$ (815.00)
Less: Depreciation
$ (33,750.00)
Cash paid for operating Expenses
$ 144,585.00
FORTEN COMPANY
Cash flow Statement
For the year ended December 31 2017
Cash Flow from Operating Activities:
Cash collected from customers
$ 625,725.00
Less: Cash Payments for
Suppliers
$ (396,390.00)
Operating Expenses
$ (144,585.00)
Income tax Expense
$ (42,450.00)
$ (583,425.00)
A. Cash Outflow from Operating Activities
$ 42,300.00
Cash flows from Investing activities
Sale of Equipment
$ 24,625.00
Purchase of Equipment
$ (56,000.00)
B.Net cash used by investing activities
$ (31,375.00)
Cash flows from Financing activities
Proceeds from short term notes payable
$ 5,300.00
Payment for long term notes payable
$ (56,625.00)
Proceeds from issue of Shares
$ 76,000.00
Payment of Dividend
$ (52,700.00)
Proceeds from Bonds Issue
C. Net cash Used in financing activities
$ (28,025.00)
(A+B+C) Net increase (Decrease) in cash
$ (17,100.00)
Add: Beginning cash Balance
$ 86,500.00
Ending Cash Balance
$ 69,400.00
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