Forten Company, a merchandiser, recently completed its calendar-year 2016 aperat
ID: 2526377 • Letter: F
Question
Forten Company, a merchandiser, recently completed its calendar-year 2016 aperations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts fram custamers, (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. ?ORTEN COMPANY Comparative Balance Sheets Docembcr 31, 2016 and 2015 2016 2015 Assets S 13,839 S 66,500 71,425 Accounts receivable Irnverilory Prepaid expenses Total current assets Equipment Accum. depreciation-Equipment Total asscts 260,156 241,800 1,300 384 800 365,750 151 225 109,000 (42 250) (49,000) S 193,775 S 125,750 Liabilities and Equity Accounts payable Short-term notes payable Total current liabilities Long-term notes payable Total liabilities Equity Common stock, $5 par valueC Paid-in capital in excess of par, common stock Retained earnings S 59,175 S 109,550 4,900 114,450 37 500 151,950 ,800 66.975 33 225 100,200 159,250 36,000 198,325 147,250 126,550 S 493,775 S 425,750 Tolal liabilities and equity FORTEN COMPANY Incorrie Stalernerl For Year Ended December 31, 2016 607,500 Cost of goods sold Gross profit Operating expenses 312,500 Depreciation expense $ 18,900 10,750 59,650 Other expenses Other gains (losses) Loss on sale of equipment Incorme before taxes Income laxes experise Net income 118,625 28,250 120,37s Additional Information on Year 2016 Transactions a. The loss on the cash sale of equipment was $4,225 (delails 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 $48,600Explanation / Answer
FORTEN COMPANY Statement of Cash Flows (Indirect Method) For the Year ended Dec 31, 2016 Cash Flow from opearating activities: Net Income 120,375 Add/(Less) non cash effects on operating activities Depreciation expense 18,900 Loss on Sale of Equipment 4,225 Increase in Accounts Receivables (15,800) Increase in Inventory (26,356) Decrease in Prepaid Expenses 445 Decrease in Accounts Payables (50,375) (68,961) Net Cash provided by operating activities 51,414 Cash flow from Investing Activities Purchase of Equipment (49,000) Sale of Equipment 14,550 Net Cash used by Investing activities (34,450) Cash Flow from Financing Activities Issue of Notes Payable - short term 2,900 Payment of Note Payable - Long term (41,925) Issue of Common stock (2,400 shares X $20) 48,000 Cash dividend paid (48,600) Net Cash used by Financing activities (39,625) Net Increase / (Decrease) in Cash (22,661) Cash balance at the beginning - Dec 31, 2015 66,500 Cash balance at the end - Dec 31, 2016 43,839