Forten Company, a merchandiser, recently completed its calendar-year 2017 operat
ID: 2429912 • 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.
Additional Information on Year 2017 Transactions
The loss on the cash sale of equipment was $23,125 (details in b).
Sold equipment costing $100,875, with accumulated depreciation of $48,125, for $29,625 cash.
Purchased equipment costing $114,375 by paying $66,000 cash and signing a long-term note payable for the balance.
Borrowed $5,800 cash by signing a short-term note payable.
Paid $59,125 cash to reduce the long-term notes payable.
Issued 4,300 shares of common stock for $20 cash per share.
Declared and paid cash dividends of $53,700.
FORTEN COMPANYComparative Balance Sheets
December 31, 2017 and 2016 2017 2016 Assets Cash $ 76,900 $ 91,500 Accounts receivable 92,950 68,625 Inventory 302,656 269,800 Prepaid expenses 1,390 2,255 Total current assets 473,896 432,180 Equipment 139,500 126,000 Accum. depreciation—Equipment (45,625 ) (55,000 ) Total assets $ 567,771 $ 503,180 Liabilities and Equity Accounts payable $ 71,141 $ 141,675 Short-term notes payable 15,400 9,600 Total current liabilities 86,541 151,275 Long-term notes payable 56,000 66,750 Total liabilities 142,541 218,025 Equity Common stock, $5 par value 198,750 168,250 Paid-in capital in excess of par, common stock 55,500 0 Retained earnings 170,980 116,905 Total liabilities and equity $ 567,771 $ 503,180
Explanation / Answer
Cash flow Statement: Cash flows from Operatin g activities Net income for the year 107775 Adjustment required Depreciation 38750 Loss on sale fo equipment 23125 Increase in Accounts payable -24325 Increase in Inventory -32856 Decrease in Prepaid expense 865 Decrease in Accounts payable -70534 Net cash provided from Operating activities 42800 Cash flows from Investing activities: Sale of equipment 29625 Purchase of equipment -66000 Net cash used in Investing activities -36375 Cash flows from Financing activities: Borrowings on short term notes 5800 Repayment of long term notes -59125 Issue of Common Stock 86000 Dividen d paid -53700 Net cash used in financing activities -21025 Net decrease in cash -14600 Beginning balance of cash 91500 Ending cash balance 77900 Cash flow Statement: Cash flows from Operatin g activities Cash received from Accounts receivable (672500+68625-92950) 648175 Cash paid for inventory (303000+302656-269800+141675-71141) -406390 Cash paid for operating expense (150400+1390-2255) -149535 Income tax paid -49450 Net cash provided from Operating activities 42800 Cash flows from Investing activities: Sale of equipment 29625 Purchase of equipment -66000 Net cash used in Investing activities -36375 Cash flows from Financing activities: Borrowings on short term notes 5800 Repayment of long term notes -59125 Issue of Common Stock 86000 Dividen d paid -53700 Net cash used in financing activities -21025 Net decrease in cash -14600 Beginning balance of cash 91500 Ending cash balance 77900