Forten Company, a merchandiser, recently completed its calendar-year 2017 operat
ID: 2593933 • 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 $ 52,900 $ 75,500 Accounts receivable 68,810 52,625 Inventory 278,656 253,800 Prepaid expenses 1,270 1,995 Total current assets 401,636 383,920 Equipment 155,500 110,000 Accum. depreciation—Equipment (37,625 ) (47,000 ) Total assets $ 519,511 $ 446,920 Liabilities and Equity Accounts payable $ 55,141 $ 117,675 Short-term notes payable 10,600 6,400 Total current liabilities 65,741 124,075 Long-term notes payable 64,000 50,750 Total liabilities 129,741 174,825 Equity Common stock, $5 par value 166,750 152,250 Paid-in capital in excess of par, common stock 39,500 0 Retained earnings 183,520 119,845 Total liabilities and equity $ 519,511 $ 446,920 FORTEN COMPANY Income Statement For Year Ended December 31, 2017 Sales $ 592,500 Cost of goods sold 287,000 Gross profit 305,500 Operating expenses Depreciation expense $ 22,750 Other expenses 134,400 157,150 Other gains (losses) Loss on sale of equipment (7,125 ) Income before taxes 141,225 Income taxes expense 27,050 Net income $ 114,175 Additional Information on Year 2017 Transactions Net income was $114,175. Accounts receivable increased. Inventory increased. Prepaid expenses decreased. Accounts payable decreased. Depreciation expense was $22,750. Sold equipment costing $52,875, with accumulated depreciation of $32,125, for $13,625 cash. This yielded a loss of $7,125. Purchased equipment costing $98,375 by paying $34,000 cash and (i.) by signing a long-term note payable for the balance. Borrowed $4,200 cash by signing a short-term note payable. Paid $51,125 cash to reduce the long-term notes payable. Issued 2,700 shares of common stock for $20 cash per share. Declared and paid cash dividends of $50,500. Required: Prepare a complete statement of cash flows using a spreadsheet; report its operating activities using the indirect method. (Enter all amounts as positive values.)
Explanation / Answer
Note: Equipment purchased by issuing note payable of $64375 ($98375 - $34000) is a non-cash transaction and does not flow through the cash flow statement but is disclosed as a footnote to the financial statements. Thus, equipments purchased for cash only are included in the cash flow statement.
Please note: All amounts are entered as positive values as instructed in the question.
FORTEN COMPANY Statement of Cash Flows For the Year Ended December 31, 2017 Cash Flows from Operating Activities Net income 114175 Adjustments to reconcile net income to net cash provided by operations: Depreciation expense 22750 Loss on sale of equipment 7125 Increase in Accounts Receivable 16185 Increase in Inventory 24856 Decrease in Prepaid expenses 725 Decrease in Accounts payable 62534 72975 Net cash used by operating activities 41200 Cash Flows from Investing Activities Sale proceeds of equipment 13625 Purchase of equipment 34000 Net cash used by investing activities 20375 Cash Flows from Financing Activities Issue of short-term notes payable 4200 Payment of long-term notes payable 51125 Issuance of Common stock (2700 x $20) 54000 Payment of cash dividends 50500 Net cash used by financing activities 43425 Net decrease in cash 22600 Cash balance at beginning of year 75500 Cash balance at end of year 52900