Forten Company, a merchandiser, recently completed its calendar-year 2016 operat
ID: 2572072 • Letter: F
Question
Forten Company, a merchandiser, recently completed its calendar-year 2016 operations. For the year, (1) all sales are credit sales, (2) al 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, 2016 and 2015 2016 2015 Assets Cash Accounts receivable Inventory Prepaid expenses Total current assets Equipment Accum. depreciation-Equipment Total assets S 49,800 $ 73,500 50,625 251,800 1.875 377,800 108,000 46,000 S 513,391 $ 439,800 65,810 275,656 1.250 392.516 157.500 36,625) 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 $ 53,141 $ 114,675 6,000 120,675 48,750 169,425 10.000 63,141 65,000 128,141 162,750 37.500 185.000 S 513,391 150,250 120.125 $ 439,800 FORTEN COMPANY Income Statement For Year Ended December 31, 2016 Sales Cost of goods sold Gross profit Operating expenses $582,500 285,000 297,500 Depreciation expense $ 20,750 132,400 153,150 Other expenses Other gains (losses) Loss on sale of equipment Income before taxes Income taxes expense Net income 5,125 139,225 24,250 $ 114,975 Additional Information on Year 2016 Transactions a. The loss on the cash sale of equipment was $5,125 (details in b) b. Sold equipment costing $46,875, with accumulated depreciation of $30,125, for $11,625 cash c. Purchased equipment costing $96,375 by paying $30,000 cash and signing a long-term note payable for the balance d. Borrowed $4,000 cash by signing a short-term note payable e. Paid $50,125 cash to reduce the long-term notes payable f. Issued 2,500 shares of common stock for $20 cash per share g. Declared and paid cash dividends of $50,100 Reguired: Prepare a complete statement of cash flows; report its operating activities according to the direct method. (Amounts to be deducted should be indicated with a minus sign.)Explanation / Answer
working notes:
cash received from customers = sales + opening accounts receivable - closing accounts receivable
=>582,500 +50,625 - 65,810
=>$567,315.
cash paid for inventory :
first we shall find out inventory purchased during the year
=> cost of goods sold + closing inventory - opening inventory
=>285,000 + 275,656 - 251,800
=>$308,856.
now,
cash paid for inventory = inventory purchased + opening account payable - closing accounts payable
=>$308,856 + 114,675 - 53,141
=>$370,390.
cash paid for other expenses = other expenses - prepaid expenses + closing prepaid expenses
=>$132,400 - $1,875 +$1,250
=>$131,775.
cash paid for income taxes = $24,250.
THe follwing will be the cash flow statement:
Cash flow from operating activities Cash received from customers $567,315 Cash paid for inventory (370,390) Cash paid for other expenses (131,775) cash paid for income taxes (24,250) Net cash provided by operating activities $40,900 Cash flows from investing activities cash paid for equipment (30,000) cash from sale of equipment 11,625 net cash used in investing activities (18,375) Cash flow from financing activities Cash borrowed on short term note 4,000 cash paid on long term note (50,125) cash received from issuing stock 50,000 cash paid for dividends (50,100) net cash used in financing activities (46,225) net increase (decrease ) in cash (23,700) cash balance at beginning of year 73,500 cash balance at end of year $49,800