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ID: 2593167 • Letter: R
Question
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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 $15,125 (details in b).
Sold equipment costing $76,875, with accumulated depreciation of $40,125, for $21,625 cash.
Purchased equipment costing $106,375 by paying $50,000 cash and signing a long-term note payable for the balance.
Borrowed $5,000 cash by signing a short-term note payable.
Paid $55,125 cash to reduce the long-term notes payable.
Issued 3,500 shares of common stock for $20 cash per share.
Declared and paid cash dividends of $52,100.
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.)
Comparative Balance Sheets
December 31, 2017 and 2016 2017 2016 Assets Cash $ 64,900 $ 83,500 Accounts receivable 80,870 60,625 Inventory 290,656 261,800 Prepaid expenses 1,310 2,095 Total current assets 437,736 408,020 Equipment 147,500 118,000 Accum. depreciation—Equipment (41,625 ) (51,000 ) Total assets $ 543,611 $ 475,020 Liabilities and Equity Accounts payable $ 63,141 $ 129,675 Short-term notes payable 13,000 8,000 Total current liabilities 76,141 137,675 Long-term notes payable 60,000 58,750 Total liabilities 136,141 196,425 Equity Common stock, $5 par value 182,750 160,250 Paid-in capital in excess of par, common stock 47,500 0 Retained earnings 177,220 118,345 Total liabilities and equity $ 543,611 $ 475,020
Explanation / Answer
Statement of cashflows Cashflows from operating activities: Net income 110975 Adjustment to reconcile net income to net cash flow from operating activities: Depreciation expenses-Equipment 30750 Loss on sale of equipment 15125 Changes in current operating assets and liabilities: Increase in accounts receivable (Net) (80870-60625) -20245 Increase in inventory (290656-261800) -28856 Decrease in prepaid expenses (2095-1310) 785 Increase in short-term notes payable (13000-8000) 5000 Increase in accounts payable (129675-63141) -66534 Net cashflow from operating activities …………………a 47000 Cashflows from (used for) investing activities: Sale of equipment 21625 purchase of equipment -50000 Net Cashflows used for investing activities…………..b -28375 Cashflows from (used for) financing activities: Issuance of common stock (3500*20) 70000 Repayment of long-term notes payable -55125 Payment of dividends -52100 Net cashflows from financing activities………………c -37225 Increase in cash (a+b+c) -18600 Cash at the beginning of the year 83500 Cash at the end of the year 64900
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