Forten Company, a merchandiser, recently completed its calendar-year 2016 operat

Question

Forten Company, a merchandiser, recently completed its calendar-year 2016 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, 2016 and 2015 2016 2015 Assets $ 70,944 S 72,000 61,125 259,906 230,800 2.100 411,575366,025 120,000 (53,800) 60000) 520,275 S 426,025 79,125 1,600 162,500 Accounts receivable Prepaid expenses Total current assets Equipment Accum. depreciation-Equipment Total assets Liabilities and Equity Accounts payable Short-term notes payable Total current liabilities Long-term notes payable Total liabilities $ 58,075 S 111,200 6,000 68,075 117,200 43,000 92,250 160,200 10,000 24,175 Common stock, S5 par value Paid-in capital in excess of par, common stock Retained earnings Total liabilities and equity 167,500150,000 52,500 208,025 115,825 $520,275 S 426,025

Explanation / Answer

Solution:

Forten Company Statement of Cash Flows (Indirect Method) For year ended December 31, 2016 Particulars Details Amount Cash Flow from Operating Activities: Net Income $145,200.00 Adjustments to reconcile net income to net cash provided by operations: Depreciation Expense $20,000.00 Loss on sale of equipment $4,500.00 Increase in accounts receivables ($79,125 - $61,125) -$18,000.00 Increase in inventory ($259,906 - $230,800) -$29,106.00 Decrease in prepaid expenses ($2,100 - $1,600) $500.00 Decrease in accounts payable ($111,200 - $58,075) -$53,125.00 Net Cash provided by operating activities $69,969.00 Cash Flow from Investing Activities: Sale of equipment $15,100.00 Purchase of equipment -$63,000.00 Net Cash Provided by Investing activities -$47,900.00 Cash Flow from Financing Activities: Proceed from issue of common stock $70,000.00 Cash received from short term borrowings $4,000.00 Cash paid for long term note -$44,125.00 Cash paid for dividend -$53,000.00 Net Cash Provided by financing activities -$23,125.00 Net Increase / (Decrease) in Cash -$1,056.00 Cash balance at beginning of year $72,000.00 Cash balance at end of year $70,944.00

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