Forten Company, a merchandiser, recently completed its calendar-year 2015 operat

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 $ 52,779S 65,500 54,625 243,800 1,775 70,025 269,656 1,340 Total current assets Equipment Accum. depreciation-Equipment 393,800 149,175 365,700 107,000 (40,150) (47,000) Total assets $ 502,825$425,700 Liabilities and Equity Accounts pavable Short-term notes payable $ 59,375 $109,250 7,400 4,700 Total current liabilities Long-term notes payable 66,775 34,325 113,950 Total liabilities Equity Common stock, $5 par value Paid-in capital in excess of par, common stock Retained earnings 36,500 150,450 146,750 128,500 502,825 $425,700 101,100 157,750 33,000 210,975 Total liabilities and equity

Explanation / Answer

Note: Equipment acquired by issuing note payable of $39350 ($86350 - $47000) is a non-cash transaction and does not flow through the cash flow statement but is disclosed as a footnote to the financial statements. Thus, equipments purchased for cash only are included in the cash flow statement.

FORTEN COMPANY Statement of Cash Flows For the Year Ended December 31, 2015 Cash Flows from Operating Activities Net income 130275 Adjustments to reconcile net income to net cash provided by operations: Depreciation expense 18700 Loss on sale of equipment 4175 Increase in Accounts Receivable -15400 Increase in Inventory -25856 Decrease in Prepaid expenses 435 Decrease in Accounts payable -49875 -67821 Net cash used by operating activities 62454 Cash Flows from Investing Activities Sale proceeds of equipment 14450 Purchase of equipment -47000 Net cash used by investing activities -32550 Cash Flows from Financing Activities Issue of short-term notes payable 2700 Payment of long-term notes payable -41525 Issuance of Common stock (2200 x $20) 44000 Payment of cash dividends -47800 Net cash used by financing activities -42625 Net increase (decrease) in cash -12721 Cash balance at beginning of year 65500 Cash balance at end of year 52779

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