Forten Company, a merchandiser, recently completed its calendar-year 2017 operat
ID: 2329223 • Letter: F
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.
Problem 12-5AB Direct: Statement of cash flows LO P1, P3, P5
Additional Information on Year 2017 Transactions
The loss on the cash sale of equipment was $19,125 (details in b).
Sold equipment costing $88,875, with accumulated depreciation of $44,125, for $25,625 cash.
Purchased equipment costing $110,375 by paying $58,000 cash and signing a long-term note payable for the balance.
Borrowed $5,400 cash by signing a short-term note payable.
Paid $57,125 cash to reduce the long-term notes payable.
Issued 3,900 shares of common stock for $20 cash per share.
Declared and paid cash dividends of $52,900.
Required:
Prepare a complete statement of cash flows; report its operating activities according to the direct method. (Amounts to be deducted should be indicated with a minus sign.)
Comparative Balance Sheets
December 31, 2017 and 2016 2017 2016 Assets Cash $ 70,900 $ 87,500 Accounts receivable 86,910 64,625 Inventory 296,656 265,800 Prepaid expenses 1,350 2,175 Total current assets 455,816 420,100 Equipment 143,500 122,000 Accum. depreciation—Equipment (43,625 ) (53,000 ) Total assets $ 555,691 $ 489,100 Liabilities and Equity Accounts payable $ 67,141 $ 135,675 Short-term notes payable 14,200 8,800 Total current liabilities 81,341 144,475 Long-term notes payable 58,000 62,750 Total liabilities 139,341 207,225 Equity Common stock, $5 par value 190,750 164,250 Paid-in capital in excess of par, common stock 51,500 0 Retained earnings 174,100 117,625 Total liabilities and equity $ 555,691 $ 489,100
Explanation / Answer
FORTEN COMPANY STATEMENT OF CASH FLOWS FOR YEAR ENDED DEC 31, 2017 Cash flow form operating activities Amount in figure of $ Net income 109375 Adjustment Depreciation 34750 loss on sale of equipment 19125 53875 163250 changes in working capital account receviable increase -22285 inventory increase -30856 prepaid exp deccrease 825 accounts payable decerease -68534 short term notes payable 5400 -115450 net cash flow from operation activities (1) 47800 Cash flow from investing activities(2) sale of equipment 25625 purchase of equipment -58000 net cash flow from investing activities -32375 Cash flow from financing activities (3) issue of shares (3900*20) 78000 long term notes paid -57125 Dividend paid -52900 -32025 Net increase/decrease in cash & cash equivalent(1)+(2)+(3) -16600 Cash & cash equivalent at beginning of period 87500 Cash & cash equivalent at end of period 70900 Working note Equipment closing balance 143500 Add: sale of equipment 88875 232375 less: opening balance of equipment 122000 purchase value of equipment 110375 less: cash paid for purcahse 58000 long term notes taken 52375 long term note payable closing balance of long term note 58000 add: paid during the year 57125 115125 less: opening balance of long term notes payable 62750 equipment balance 52375