Forten Company, a merchandiser, recently completed its calendar-year 2017 operat
ID: 2509856 • 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.
FORTEN COMPANY Comparative Balance Sheets December 31, 2017 and 2016 2017 2016 Assets Cash Accounts receivable Inventory Prepaid expenses Total current assets Equipment Accum. depreciation-Equipment Total assets Liabilities and Equity Accounts payable Short-term notes payable Total current liabilities Long-term notes payable Total liabilities Equity Common stock, $5 par value Paid-in capital in excess of par, common stock Retained earnings Total liabilities and equity $ 52,900 75,500 2,625 253,800 1,995 383,920 110,000 47,000 $519,511 446,920 68,810 278,656 1,270 401,636 155,500 (37,625) S 55,141 117,675 6,400 124,075 50,750 174,825 10,600 65,741 64,000 129,741 166,750 39,500 152,250 133,529 119,845 $519,511 446,920 FORTEN COMPANY Income Statement For Year Ended December 31, 2017 Sales Cost of goods sold Gross profit Operating expenses $ 592,500 287,000 305, 500 Depreciation expense $ 22,7560 134,400 157,150 Other expenses Other gains (losses) Loss on sale of equipment Income before taxes Income taxes expense Net income (7,125) 141,225 27,050 S 114,17.5 Additional Information on Year 2017 Transactions a. The loss on the cash sale of equipment was $7,125 (details in b). b. Sold equipment costing $52,875, with accumulated depreciation of $32,125, for $13,625 cash. c. Purchased equipment costing $98,375 by paying $34,000 cash and signing a long-term note payable for the balance d. Borrowed $4,200 cash by signing a short-term note payable e. Paid $51,125 cash to reduce the long-term notes payablee f. Issued 2,700 shares of common stock for $20 cash per share g. Declared and paid cash dividends of $50,500Explanation / Answer
FORTEN COMPANY Statement of Cash Flow From Direct method Year Ended December, 2015 Amount in $ Cash Flow from Operating Activities Cash Received From Customers (Note-1) 576315 Cash paid for inventory (Note-2) -374390 Cash paid for Income Tax -27050 Cash paid for Other expenses (Note-3) -133675 Net Cash Flow from operating Activities (A) 41200 Cash Flow from Investing Activities Cash received from Sale of Equipment 13625 Cash paid for equipment -34000 Net Cash Used from operating Activities (B) -20375 Cash Flow from Financing Activities Cash paid for dividends -50500 Cash received from issuing of stocks 54000 cash paid on long term note -51125 cash borrowed on short term note 4200 Net Cash Used from operating Activities ( C ) -43425 Net increase (Decrease) in Cash (A+B+C0 -22600 Cash balance beginning of the year 75500 Cash balance at end of the year 52900 Note-1 Cash Received From Customers Beginning Account receivable 52625 add : Sale 592500 less : Ending Accounting Receivable -68810 576315 Note-2 Cash Paid for Inventory Beginning Account payable 117675 add : cost of goods sold 287000 less : Ending Account Payable -55141 Less : Beginning Inventory -253800 Add : Ending Inventory 278656 374390 Note-3 Cash paid for Other expenses Other Expenses 134400 Less : Beginning Prepaid Expenses -1995 Add : Ending Prepaid Expenses 1270 133675