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ID: 2593170 • Letter: R
Question
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[The following information applies to the questions displayed below.]
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
a. Net income was $110,975.
b. Accounts receivable increased.
c. Inventory increased.
d. Prepaid expenses decreased.
e. Accounts payable decreased.
f. Depreciation expense was $30,750.
g. Sold equipment costing $76,875, with accumulated depreciation of $40,125, for $21,625 cash. This yielded a loss of $15,125.
h. Purchased equipment costing $106,375 by paying $50,000 cash and (i.) by signing a long-term note payable for the balance.
i. Borrowed $5,000 cash by signing a short-term note payable.
j. Paid $55,125 cash to reduce the long-term notes payable.
k. Issued 3,500 shares of common stock for $20 cash per share.
l. Declared and paid cash dividends of $52,100.
Required:
Prepare a complete statement of cash flows using a spreadsheet; report its operating activities using the indirect method. (Enter all amounts as positive values.)
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
Forten Company For the year ended december 31, 2017 Statement of Cash Flows © www.excel-skills.com 2017 Cash flows from operating activities Profit before taxation 110,975.00 Adjustments for: Depreciation 30,750.00 Profit / (Loss) on the sale of equipment (15,125.00) Working capital changes: (Increase) / Decrease in trade and other receivables (20,245.00) (Increase) / Decrease in inventories (22,556.00) (Increase) / Decrease in prepaid expenses 785.00 Increase / (Decrease) in Note payables 5,000.00 Increase / (Decrease) in trade payables (66,534.00) Cash generated from operations 23,050.00 Income taxes paid (38,250.00) Dividends paid (52,100.00) Net cash from operating activities (90,350.00) Cash flows from investing activities Purchase of equipment (50,000.00) Proceeds from sale of equipment 21,625.00 Net cash used in investing activities (118,725.00) Cash flows from financing activities Payment to long term note payable (55,125.00) Proceeds from issue of shares 70,000.00 Net cash used in financing activities (103,850.00) Net increase in cash and cash equivalents 18,600.00 Cash and cash equivalents at beginning of period 64,900.00 Cash and cash equivalents at end of period 83,500.00
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