Forten Company, a merchandiser, recently completed its calendar-year 2015 operat
ID: 2491343 • 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 Comparative Balance Sheets December 31, 2015 and 2014 2015 2014 Assets Cash $ 52,779 $ 65,500 Accounts receivable 70,025 54,625 Inventory 269,656 243,800 Prepaid expenses 1,340 1,775 Total current assets 393,800 365,700 Equipment 149,175 107,000 Accum. depreciation—Equipment (40,150) (47,000) Total assets $ 502,825 $ 425,700 Liabilities and Equity Accounts payable $ 59,375 $ 109,250 Short-term notes payable 7,400 4,700 Total current liabilities 66,775 113,950 Long-term notes payable 34,325 36,500 Total liabilities 101,100 150,450 Equity Common stock, $5 par value 157,750 146,750 Paid-in capital in excess of par, common stock 33,000 0 Retained earnings 210,975 128,500 Total liabilities and equity $ 502,825 $ 425,700 FORTEN COMPANY Income Statement For Year Ended December 31, 2015 Sales $ 602,500 Cost of goods sold 293,000 Gross profit 309,500 Operating expenses Depreciation expense $ 18,700 Other expenses 128,600 147,300 Other gains (losses) Loss on sale of equipment (4,175) Income before taxes 158,025 Income taxes expense 27,750 Net income $ 130,275 Additional Information on Year 2015 Transactions a. The loss on the cash sale of equipment was $4,175 (details in b). b. Sold equipment costing $44,175, with accumulated depreciation of $25,550, for $14,450 cash. c. Purchased equipment costing $86,350 by paying $47,000 cash and signing a long-term note payable for the balance. d. Borrowed $2,700 cash by signing a short-term note payable. e. Paid $41,525 cash to reduce the long-term notes payable. f. Issued 2,200 shares of common stock for $20 cash per share. g. Declared and paid cash dividends of $47,800. 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.)
Explanation / Answer
Net income $130,275
Add:
Depreciation expense 18,700
Loss on sale of equipment 4,175
Decrease in prepaid expense 434
Increase in short term note payable 2,700
Less:
Increase in account receivable -15,400
Increase in inventory - 25,856
Decreas in accounts payable - 49,875 -65,121
Cash flow from operating activity 65,154
Net income $130,275
Add:
Depreciation expense 18,700
Loss on sale of equipment 4,175
Decrease in prepaid expense 434
Increase in short term note payable 2,700
Less:
Increase in account receivable -15,400
Increase in inventory - 25,856
Decreas in accounts payable - 49,875 -65,121
Cash flow from operating activity 65,154
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