Forten Company, a merchandiser, recently completed its calendar-year 2017 operat
ID: 2599642 • 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
The loss on the cash sale of equipment was $17,125 (details in b).
Sold equipment costing $82,875, with accumulated depreciation of $42,125, for $23,625 cash.
Purchased equipment costing $108,375 by paying $54,000 cash and signing a long-term note payable for the balance.
Borrowed $5,200 cash by signing a short-term note payable.
Paid $56,125 cash to reduce the long-term notes payable.
Issued 3,700 shares of common stock for $20 cash per share.
Declared and paid cash dividends of $52,500.
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.)
Comparative Balance Sheets
December 31, 2017 and 2016 2017 2016 Assets Cash $ 67,900 $ 85,500 Accounts receivable 83,890 62,625 Inventory 293,656 263,800 Prepaid expenses 1,330 2,135 Total current assets 446,776 414,060 Equipment 145,500 120,000 Accum. depreciation—Equipment (42,625 ) (52,000 ) Total assets $ 549,651 $ 482,060 Liabilities and Equity Accounts payable $ 65,141 $ 132,675 Short-term notes payable 13,600 8,400 Total current liabilities 78,741 141,075 Long-term notes payable 59,000 60,750 Total liabilities 137,741 201,825 Equity Common stock, $5 par value 186,750 162,250 Paid-in capital in excess of par, common stock 49,500 0 Retained earnings 175,660 117,985 Total liabilities and equity $ 549,651 $ 482,060
Explanation / Answer
FORTEN COMPANY Statement of Cash Flows For year ended December 31, 2017 Cash flows from operating activities: Net income $110,175 Adjustments to reconcile net income to net cash provided by operations: Depreciation expense $32,750 Accounts receivable increase -$21,265 Inventory increase -$29,856 Prepaid expense decrease $805 Accounts payable decrease -$67,534 Loss on disposal of equipment $17,125 Net cash provided by operating activities $42,200 Cash flows from investing activities: Cash paid for equipment -$54,000 Cash received from sale of equipment $23,625 Net cash used in investing activities -$30,375 Cash flows from financing activities: Cash borrowed on short-term note $5,200 Cash paid on long-term note -$56,125 Cash received from issuing stock $74,000 Cash paid for dividends -$52,500 Net cash flows from financing activities -$29,425 Net increase in cash -$17,600 Cash balance, January 1 $85,500 Cash balance, December 31 $67,900 Noncash investing and financing activities: Acquired equipment by signing long-term note $54,375