Forten Company, a merchandiser, recently completed its calendar-year 2017 operat

Question

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. FORTEN COMPANY Comparative Balance Sheets December 31, 2017 and 2016 2017 2016 Assets Cash $ 52,900 $ 75,500 Accounts receivable 68,810 52,625 Inventory 278,656 253,800 Prepaid expenses 1,270 1,995 Total current assets 401,636 383,920 Equipment 155,500 110,000 Accum. depreciation—Equipment (37,625 ) (47,000 ) Total assets $ 519,511 $ 446,920 Liabilities and Equity Accounts payable $ 55,141 $ 117,675 Short-term notes payable 10,600 6,400 Total current liabilities 65,741 124,075 Long-term notes payable 64,000 50,750 Total liabilities 129,741 174,825 Equity Common stock, $5 par value 166,750 152,250 Paid-in capital in excess of par, common stock 39,500 0 Retained earnings 183,520 119,845 Total liabilities and equity $ 519,511 $ 446,920 FORTEN COMPANY Income Statement For Year Ended December 31, 2017 Sales $ 592,500 Cost of goods sold 287,000 Gross profit 305,500 Operating expenses Depreciation expense $ 22,750 Other expenses 134,400 157,150 Other gains (losses) Loss on sale of equipment (7,125 ) Income before taxes 141,225 Income taxes expense 27,050 Net income $ 114,175 Additional Information on Year 2017 Transactions The loss on the cash sale of equipment was $7,125 (details in b). Sold equipment costing $52,875, with accumulated depreciation of $32,125, for $13,625 cash. Purchased equipment costing $98,375 by paying $34,000 cash and signing a long-term note payable for the balance. Borrowed $4,200 cash by signing a short-term note payable. Paid $51,125 cash to reduce the long-term notes payable. Issued 2,700 shares of common stock for $20 cash per share. Declared and paid cash dividends of $50,500. 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

Forten Company

Statement of cash flows

For the year ended December 31, 2017

Cash flows from operating activities Net Income $114175 Adjustment to net income for non cash items: Add depreciation 22750 Add loss on sale of equipment 7125 Add: decrease in current assets: decreasse in prepaid expenses 725 Less: increase in current assets: increase in accounts receivable -16185 Less: decrease in current liabilities: decrease in accounts payable -62534 Net cash provided by operating activities 66056 Cash flows from investing activities Sale of equipment 13625 Purchase of equipment -34000 Net cash used in investing activities -20375 Cash flows from financing activities Cash borrowed on short term note payable 4200 Shares issued for cash 54000 Cash paid on long term note payable -51125 Cash dividend paid -50500 Cash used in financing activities -43425 Net increase(decrease) in cash 2256 Beginning cash balance 75500 Ending cash balance $77756

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