Fortune Company, a merchandiser, recently completed its calendar year 2008 opera
ID: 2422130 • Letter: F
Question
Fortune Company, a merchandiser, recently completed its calendar year 2008 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. Fortune’s Income Statement and Balance Sheet follow:
Additional information on Year 2008 transactions:
The loss on the cash sale of equipment was $5,125 (details in “b”).
Sold equipment costing $46,875, with accumulated depreciation of $30,125, for $11,625 cash.
Purchased equipment costing $96,375 by paying $30,000 cash and signing a long-term note payable for the balance.
Borrowed $4,000 cash by signing a short-term note payable.
Paid $50,125 cash to reduce the long-term notes payable.
Issued 2,500 shares of common stock for $20 cash.
Declared and paid cash dividends of $50,100.
1. Prepare a complete statement of cash flows; report its operating activities using the indirect method.
Explanation / Answer
Cash flow statement
Cash flow from operating activities:
net income $114975
+ depriciation $20750
+ loss on sale of equipment $5125
- change in receivable ($15185)
-change in payable ($61534)
-change in inventory ($23856)
+change in short term note $4000
+prepaid expenses $625
Net cash flow from operating activity (A) $44900
Cash flow from investing activity
sale of equipment $11625
purchase of equipmnet ($30000)
Net cash flow from investing activity(B) ($18375)
Cash flow from financing activity
paid long term notes ($50125)
payment of dividend ($50100)
issue of common stock $50000
Net cash flow from financing activity (C) ($50225)
total cash flow(A+B+C) ($23700)
+ opening cash $73500
closing cash flow $49800