Forten Company, a merchandiser, recently completed its calendar-year 2015 operat
ID: 2491266 • Letter: F
Question
Forten Company, a merchandiser, recently completed its calendar-year 2015 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, a merchandiser, recently completed its calendar-year 2015 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, 2015 and 2014 2015 2014 Assets Cash Accounts receivable Inventory Prepaid expenses S 48,214 S 64,000 53,125 246,800 1,700 67,925 271,906 1,280 Total current assets Equipment Accum. depreciation-Equipment 389,325 146,100 365,625 104,000 (37,000 (44,000) Total assets $ 498,425 425,625 Liabilities and Equity Accounts payable Short-term notes payable S 59,675 6.800 108,800 4,400 66,475 35,975 113,200 Total current liabilities Long-term notes payable 35,000 148,200 146,000 131,425 $ 498,425 $425,625 Total liabilities 102,450 ul Common stock, $5 par value Paid-in capital in excess of par, common stock Retained earnings 155,500 28,500 211,975 Total liabilities and equity FORTEN COMPANY Income Statement For Year Ended December 31, 2015 Sales Cost of goods sold $595,000 290,000 305,000 Gross profit Operating expenses S 18,400 128,350 Depreciation expense Other expenses 146,750 Other gains (losses) Loss on sale of equipment (4,100) Income before taxes Income taxes expense 154,150 27,000 Net income $127,150 Additional Information on Year 2015 Transactions a. The loss on the cash sale of equipment was $4,100 (details in b). b. Sold equipment costing $43,800, with accumulated depreciation of $25,400, for $14,300 cash. c. Purchased equipment costing $85,900 by paying $44,000 cash and signing a long-term note payable for the balance d. Borrowed $2,400 cash by signing a short-term note payable e. Paid $40,925 cash to reduce the long-term notes payable f. Issued 1,900 shares of common stock for $20 cash per share g. Declared and paid cash dividends of $46,600Explanation / Answer
FORTEN COOMPANY
Statement of Cash Flows
For the year ended December 31, 2015
Cash Flows from Operating activities:
Net income
$ 127,150
Adjustments to reconcile net income to net cash provided by operations:
Add: Loss on sale of equipment
$ 4,100
Add: Depreciation expense
$ 18,400
Less: increase in accounts receivables (67925-53125)
$ (14,800)
Less: increase in inventory (271906-246800)
$ (25,106)
Add: Decrease in prepaid expenses (1700-1280)
$ 420
Less: Decrease in Accounts Payable (108800-59675)
$ (49,125)
Add: Increase in short term notes payable (6800-4400)
$ 2,400
Net cash provided by operating activities
$ 63,439
Cash Flows from Investing activities:
Sale of Equipment
$ 14,300
Purchase of Equipment
$ (44,000)
Net cash used by investing activities
$ (29,700)
Cash Flows from Financing activities:
Paid cash to reduce long term notes payable
$ (40,925)
Common Shares issued (1900 shares * $20)
$ 38,000
Paid cash dividend
$ (46,600)
Net cash used by Financing activities
$ (49,525)
Net cash flows
$ (15,786)
Cash balance at the beginning of the year
$ 64,000
Cash balance at the end of the year
$ 48,214
FORTEN COOMPANY
Statement of Cash Flows
For the year ended December 31, 2015
Cash Flows from Operating activities:
Net income
$ 127,150
Adjustments to reconcile net income to net cash provided by operations:
Add: Loss on sale of equipment
$ 4,100
Add: Depreciation expense
$ 18,400
Less: increase in accounts receivables (67925-53125)
$ (14,800)
Less: increase in inventory (271906-246800)
$ (25,106)
Add: Decrease in prepaid expenses (1700-1280)
$ 420
Less: Decrease in Accounts Payable (108800-59675)
$ (49,125)
Add: Increase in short term notes payable (6800-4400)
$ 2,400
Net cash provided by operating activities
$ 63,439
Cash Flows from Investing activities:
Sale of Equipment
$ 14,300
Purchase of Equipment
$ (44,000)
Net cash used by investing activities
$ (29,700)
Cash Flows from Financing activities:
Paid cash to reduce long term notes payable
$ (40,925)
Common Shares issued (1900 shares * $20)
$ 38,000
Paid cash dividend
$ (46,600)
Net cash used by Financing activities
$ (49,525)
Net cash flows
$ (15,786)
Cash balance at the beginning of the year
$ 64,000
Cash balance at the end of the year
$ 48,214
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