Forten Company, a merchandiser, recently completed its calendar-year 2015 operat
ID: 2500950 • Letter: F
Question
Forten Company, a merchandiser, recently completed its calendar-year 2015 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. FORTEN COMPANY Comparative Balance Sheets December 31, 2015 and 2014 2015 2014 Assets Cash $ 43,839 $ 66,500 Accounts receivable 71,425 55,625 Inventory 268,156 241,800 Prepaid expenses 1,380 1,825 Total current assets 384,800 365,750 Equipment 151,225 109,000 Accum. depreciation—Equipment (42,250) (49,000) Total assets $ 493,775 $ 425,750 Liabilities and Equity Accounts payable $ 59,175 $ 109,550 Short-term notes payable 7,800 4,900 Total current liabilities 66,975 114,450 Long-term notes payable 33,225 37,500 Total liabilities 100,200 151,950 Equity Common stock, $5 par value 159,250 147,250 Paid-in capital in excess of par, common stock 36,000 0 Retained earnings 198,325 126,550 Total liabilities and equity $ 493,775 $ 425,750 FORTEN COMPANY Income Statement For Year Ended December 31, 2015 Sales $ 607,500 Cost of goods sold 295,000 Gross profit 312,500 Operating expenses Depreciation expense $ 18,900 Other expenses 140,750 159,650 Other gains (losses) Loss on sale of equipment (4,225) Income before taxes 148,625 Income taxes expense 28,250 Net income $ 120,375 Additional Information on Year 2015 Transactions a. The loss on the cash sale of equipment was $4,225 (details in b). b. Sold equipment costing $44,425, with accumulated depreciation of $25,650, for $14,550 cash. c. Purchased equipment costing $86,650 by paying $49,000 cash and signing a long-term note payable for the balance. d. Borrowed $2,900 cash by signing a short-term note payable. e. Paid $41,925 cash to reduce the long-term notes payable. f. Issued 2,400 shares of common stock for $20 cash per share. g. Declared and paid cash dividends of $48,600. 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.)
Explanation / Answer
Statement od Cash flows:
$ Net Income 120375 + Depreciation 18900 + Loss on sale of equipment 4225 143500 - Increase in accounts receivable -15800 - Increase in inventory -26356 + Decrease in prepaid expenses 445 - Decrease in accounts payable -50375 + Increase in short term notes payable 2900 Cash flow from Operating activities A 54314 Sale of equipment 14550 Cash Purchase of equipment -49000 Cash flow from financing activities B -34450 Payment towards long term notes payable -41925 Issue of shares 48000 Payment of cash dividend -48600 Cash flow from financing activities C -42525 Net Increase / Decrease in cash A+B+C -22661 + Opening Cash Balance 66500 Closing Cash Balance 43839