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.

Additional Information on Year 2017 Transactions

a. The loss on the cash sale of equipment was $8,125 (details in b).

b. Sold equipment costing $55,875, with accumulated depreciation of $33,125, for $14,625 cash.

c. Purchased equipment costing $99,375 by paying $36,000 cash and signing a long-term note payable for the balance.

d. Borrowed $4,300 cash by signing a short-term note payable.

e. Paid $51,625 cash to reduce the long-term notes payable.

f. Issued 2,800 shares of common stock for $20 cash per share.

g. Declared and paid cash dividends of $50,700.

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 Accounts receivable Inventory Prepaid expenses Total current assets Equipment Accum. depreciation-Equipment Total assets $ 54,400 70,310 280,156 1,280 406,146 154,500 38,125 76,500 53,625 254,800 2,005 386,930 111,000 ( ) (47,500) $522,521 $450,430 Liabilities and Equity Accounts payable Short-term notes payable Total current liabilities Long-term notes payable Total liabilities Equity Common stock, $5 par value Paid-in capital in excess of par, common stock Retained earnings Total liabilities and equity $56,141 10,900 67,041 63,500 130,54.1 6,600 125,775 51,750 177,52!5 168,750 40,500 182,730 153,250 119,655 $522,521 $450,430 FORTEN COMPANY Income Statement For Year Ended December 31, 2017 Sales Cost of goods sold Gross profit Operating expenses $597,500 288,000 309,500 Depreciation expense $ 23,750 Other expenses 135,400 159,150 Other gains (losses) Loss on sale of equipment Income before taxes Income taxes expense Net income 8,125 142,22!5 28,450 $113,775

Explanation / Answer

FORTEN COMPANY Statement of Cash Flows For Year Ended December 31, 2017 Cash flows from operating activities Net Income 113775 Adjustments to reconcile net income to net cash provided by operations: Depreciation expense 23,750 Accounts receivable increase -16,685 Inventory increase -25,356 Prepaid expense decrease 725 Accounts payable decrease -63,034 Loss on disposal of equipment 8,125 Net cash provided by operating activities 41,300 Cash flows from investing activities Cash paid for equipment -36,000 Cash received from sale of equipment 14,625 Net cash used in investing activities -21375 Cash flows from financing activities: Cash borrowed on short-term note 4,300 Cash paid on long-term note -51,625 Cash received from issuing stock 56,000 Cash paid for dividends -50,700 Net cash used in financing activities -42025 Net increase (decrease) in cash -22100 Cash balance at beginning of year 76,500 Cash balance at end of year 54400

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