Forten Company, a merchandiser, recently completed its calendar-year 2017 operat
ID: 2516966 • 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 $ 78,400 $ 92,500 Accounts receivable 94,460 69,625 Inventory 304,156 270,800 Prepaid expenses 1,400 2,275 Total current assets 478,416 435,200 Equipment 138,500 127,000 Accum. depreciation—Equipment (46,125 ) (55,500 ) Total assets $ 570,791 $ 506,700 Liabilities and Equity Accounts payable $ 72,141 $ 143,175 Short-term notes payable 15,700 9,800 Total current liabilities 87,841 152,975 Long-term notes payable 55,500 67,750 Total liabilities 143,341 220,725 Equity Common stock, $5 par value 200,750 169,250 Paid-in capital in excess of par, common stock 56,500 0 Retained earnings 170,200 116,725 Total liabilities and equity $ 570,791 $ 506,700 FORTEN COMPANY Income Statement For Year Ended December 31, 2017 Sales $ 677,500 Cost of goods sold 304,000 Gross profit 373,500 Operating expenses Depreciation expense $ 39,750 Other expenses 151,400 191,150 Other gains (losses) Loss on sale of equipment (24,125 ) Income before taxes 158,225 Income taxes expense 50,850 Net income $ 107,375 Additional Information on Year 2017 Transactions The loss on the cash sale of equipment was $24,125 (details in b). Sold equipment costing $103,875, with accumulated depreciation of $49,125, for $30,625 cash. Purchased equipment costing $115,375 by paying $68,000 cash and signing a long-term note payable for the balance. Borrowed $5,900 cash by signing a short-term note payable. Paid $59,625 cash to reduce the long-term notes payable. Issued 4,400 shares of common stock for $20 cash per share. Declared and paid cash dividends of $53,900. Problem 16-3A Indirect: Statement of cash flows LO A1, P1, P2, P3 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
Cash flow indirect method Cash flow from operating activities Net income 107375 Adjustments to reconcile the net income Depreciation expense 39750 Loss on sale of equipment 24125 Changes in current asset and liabilities decrease in prepaid expens' 875 Increase in accounts receivable -24835 Increase in Inventory -33356 Increase in accounts payable -71034 Increase in short term notes payable 5900 -58575 Cash flow from operating activities 48800 Cash flow from Investing activities Equipment purchased -68000 Equipment sold 30625 Cash flow from Investing activities -37375 Cash flow from Financing activities Longterm notes payable -59625 Common stock 22000 Paid in capital in excess of par 66000 Dividend paid -53900 Cash flow from Financing activities -25525 Net Cash and cash equivalent -14100 Add Beginning cash and cash equivalent 92500 Ending cash and cash equivalent 78400