Forten Company, a merchandiser, recently completed its calendar-year 2016 operat
ID: 2585882 • Letter: F
Question
Forten Company, a merchandiser, recently completed its calendar-year 2016 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 2016 Transactions
The loss on the cash sale of equipment was $4,475 (details in b).
Sold equipment costing $45,675, with accumulated depreciation of $26,150, for $15,050 cash.
Purchased equipment costing $88,150 by paying $62,000 cash and signing a long-term note payable for the balance.
Borrowed $3,900 cash by signing a short-term note payable.
Paid $43,925 cash to reduce the long-term notes payable.
Issued 3,400 shares of common stock for $20 cash per share.
Declared and paid cash dividends of $52,600.
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.)
Forten Company, a merchandiser, recently completed its calendar-year 2016 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.
Comparative Balance Sheets
December 31, 2016 and 2015 2016 2015 Assets Cash $ 68,039 $ 71,500 Accounts receivable 78,425 60,625 Inventory 260,656 231,800 Prepaid expenses 1,580 2,075 Total current assets 408,700 366,000 Equipment 161,475 119,000 Accum. depreciation—Equipment (52,750 ) (59,000 ) Total assets $ 517,425 $ 426,000 Liabilities and Equity Accounts payable $ 58,175 $ 111,050 Short-term notes payable 9,800 5,900 Total current liabilities 67,975 116,950 Long-term notes payable 24,725 42,500 Total liabilities 92,700 159,450 Equity Common stock, $5 par value 166,750 149,750 Paid-in capital in excess of par, common stock 51,000 0 Retained earnings 206,975 116,800 Total liabilities and equity $ 517,425 $ 426,000 FORTEN COMPANY
Income Statement
For Year Ended December 31, 2016 Sales $ 632,500 Cost of goods sold 305,000 Gross profit 327,500 Operating expenses Depreciation expense $ 19,900 Other expenses 129,600 149,500 Other gains (losses) Loss on sale of equipment (4,475) Income before taxes 173,525 Income taxes expense 30,750 Net income $ 142,775
Additional Information on Year 2016 Transactions
The loss on the cash sale of equipment was $4,475 (details in b).
Sold equipment costing $45,675, with accumulated depreciation of $26,150, for $15,050 cash.
Purchased equipment costing $88,150 by paying $62,000 cash and signing a long-term note payable for the balance.
Borrowed $3,900 cash by signing a short-term note payable.
Paid $43,925 cash to reduce the long-term notes payable.
Issued 3,400 shares of common stock for $20 cash per share.
Declared and paid cash dividends of $52,600.
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, 2016 Cash flows from operating activities Net income 142775 Adjustments to reconcile net income to net cash provided by operations: Accounts receivable increase -17,800 Inventory increase -28,856 Prepaid expense decrease 495 Accounts payable decrease -52,875 Depreciation expense 19,900 Loss on disposal of equipment 4475 Net cash provided by operating activities 68114 Cash flows from investing activities Cash received from sale of equipment 15050 Cash paid for equipment -62000 Net cash used in investing activities -46950 Cash flows from financing activities: Cash borrowed on short-term note 3,900 Cash paid on long-term note -43,925 Cash received from issuing stock 68000 Cash paid for dividends -52600 Net cash used in financing activities -24,625 Net increase (decrease) in cash -3461 Cash balance at beginning of year 71500 Cash balance at end of year 68039