Forten Company, a merchandiser, recently completed its calendar-year 2017 operat
ID: 2511014 • 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 $25,125 (details in b).
Sold equipment costing $106,875, with accumulated depreciation of $50,125, for $31,625 cash.
Purchased equipment costing $116,375 by paying $70,000 cash and signing a long-term note payable for the balance.
Borrowed $6,000 cash by signing a short-term note payable.
Paid $60,125 cash to reduce the long-term notes payable.
Issued 4,500 shares of common stock for $20 cash per share.
Declared and paid cash dividends of $54,100.
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.)
Comparative Balance Sheets
December 31, 2017 and 2016 2017 2016 Assets Cash $ 79,900 $ 93,500 Accounts receivable 95,970 70,625 Inventory 305,656 271,800 Prepaid expenses 1,410 2,295 Total current assets 482,936 438,220 Equipment 137,500 128,000 Accum. depreciation—Equipment (46,625 ) (56,000 ) Total assets $ 573,811 $ 510,220 Liabilities and Equity Accounts payable $ 73,141 $ 144,675 Short-term notes payable 16,000 10,000 Total current liabilities 89,141 154,675 Long-term notes payable 55,000 68,750 Total liabilities 144,141 223,425 Equity Common stock, $5 par value 202,750 170,250 Paid-in capital in excess of par, common stock 57,500 0 Retained earnings 169,420 116,545 Total liabilities and equity $ 573,811 $ 510,220 FORTEN COMPANY
Income Statement
For Year Ended December 31, 2017 Sales $ 682,500 Cost of goods sold 305,000 Gross profit 377,500 Operating expenses Depreciation expense $ 40,750 Other expenses 152,400 193,150 Other gains (losses) Loss on sale of equipment (25,125 ) Income before taxes 159,225 Income taxes expense 52,250 Net income $ 106,975
Additional Information on Year 2017 Transactions
The loss on the cash sale of equipment was $25,125 (details in b).
Sold equipment costing $106,875, with accumulated depreciation of $50,125, for $31,625 cash.
Purchased equipment costing $116,375 by paying $70,000 cash and signing a long-term note payable for the balance.
Borrowed $6,000 cash by signing a short-term note payable.
Paid $60,125 cash to reduce the long-term notes payable.
Issued 4,500 shares of common stock for $20 cash per share.
Declared and paid cash dividends of $54,100.
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
FORTEN COMPANY Statement of Cash Flows For Year Ended December 31, 2017 Cash flows from operating activities Net Income $106,975 Adjustments to reconcile net income to net cash provided by operations: Depreciation expense 40,750 Accounts receivable increase -25,345 Inventory increase -33,856 Prepaid expense decrease 885 Accounts payable decrease -71,534 Loss on disposal of equipment 25,125 Net cash provided by operating activities $43,000 Cash flows from investing activities Cash paid for equipment -70,000 Cash received from sale of equipment 31,625 Net cash used in investing activities -38375 Cash flows from financing activities: Cash borrowed on short-term note 6,000 Cash paid on long-term note -60,125 Cash received from issuing stock 90,000 Cash paid for dividends -54,100 Net cash used in financing activities -18225 Net increase (decrease) in cash -13600 Cash balance at beginning of year 93,500 Cash balance at end of year 79900