Forten Company, a merchandiser, recenty completed its calendar-year 2015 operati
ID: 2485706 • Letter: F
Question
Forten Company, a merchandiser, recenty completed its calendar-year 2015 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Reoeivable 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, 2015 and 2014 2015 Assets Cash Accounts receivable 65,825 274,156 1,220 43,649 62,500 51,625 249,800 1,625 Prepaid expenses Total current assets 384,850 143,025 385,550 101,000 33,850) (41,000) Total assets S 494,025 425,550 Liabilities and Equity Acoounts payable Short-term notes payable 59.975 108,350 4,100 6,200 Total current liablities Long-term notes payable 112.450 66.175 37,625 Total liabilities 03,800 145,950 Common stock, $5 par value Paid-in capital in excess of par, common stock Retained earnings 153,250 24,000 212,975 134,350 Total liablities and equity 494,025 $425,550 FORTEN COMPANY Income Statement For Year Ended December 31, 2015 $587.500 287,000 Cost of goods sold 300.500 Gross profit Operating expenses Depreciation expense Other expenses 18,100 128,100 146,200 Other gains (losses) Loss on sale of equipment (4,025) Income before taxes Income taxes expense 150,275 26.250 Net income $124.025 Additional Information on Year 2015 Transactions a. The loss on the cash sale of equipment was $4.025 (details in b). b. Sold equipment costing $43,425, with accumulated depreciation of $25,250, for $14,.150 cash. c. Purchased equipment costing $85,450 by paying $41,000 cash and signing a long-term note payable for the balance. d. Borrowed $2,100 cash by signing a short-term note payable. e. Paid $40.325 cash to reduce the long-term notes payable. f. Issued 1,600 shares of common stock for $20 cash per share. g. Declared and paid cash dividends of $45,400.Explanation / Answer
Notes
1) Gain or loss on sale of asset is reversed from operating activities as it is dealt in cash flow from investing activities .
2) depreciation being non cash expense is added back
3) increase in current assets means blockage of more cash therfore deducted., and vice versa
4) increase in current liability means more cash is freed from working capital requirement
5) short term notes form part of current liability
6) income tax expense is already deducted from net income therefore not taken seperately
7)
Cash flow statement Cash flow from operating income Detail Amount Net Income 124025 Adjustments to convert net income to cash basis Loss on sale of equipment 4025 Depreciation expense - Non cash expense 18100 Increase in Acccounts Receivables -14200 Increase in Inventory -24356 Decrease in Prepaid expense 405 Decrease in accounts payable -48375 Increase in short term notes payable 2100 -62301 Net Cash flow from operating activities - A 61724 Cash flow from investing activities Equipment sold 14150 Equipment purchased -41000 -26850 Net Cash flow from Investing activities - B -26850 Cash flow from Financing activities Dividend paid -45400 Issue of common stock 32000 Redemption of long term notes payable -40325 -53725 Net Cash flow from Financing activities - C -53725 Net increase in cash and cash equivalent = A+ B +C -18851 Add: Cash at beginning of year 62500 = Cash at end 43649