Forten Company, a merchandiser, recently completed its calendar-year 2017 operat
ID: 2594120 • 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.
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.)
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
Explanation / Answer
FORTEN COMPANY Statement of Cash Flows For 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 22,750 Accounts receivable increase -16,185 Inventory increase -24,856 Prepaid expense decrease 725 Accounts payable decrease -62,534 Loss on disposal of equipment 7,125 Net cash provided by operating activities 41200 Cash flows from investing activities Cash paid for equipment -34,000 Cash received from sale of equipment 13,625 Net cash used in investing activities -20375 Cash flows from financing activities: Cash borrowed on short-term note 4,200 Cash paid on long-term note -51,125 Cash received from issuing stock 54,000 Cash paid for dividends -50,500 Net cash used in financing activities -43425 Net increase (decrease) in cash -22600 Cash balance at beginning of year 75,500 Cash balance at end of year 52900