Question

FORTEN COMPANY Comparative Balance Sheets December 31
	Current Year						Prior Year
Assets
Cash		$	72,400					$	88,500
Accounts receivable			88,420						65,625
Inventory			298,156						266,800
Prepaid expenses			1,360						2,195
Total current assets			460,336						423,120
Equipment			142,500						123,000
Accum. depreciation—Equipment			(44,125	)					(53,500	)
Total assets		$	558,711					$	492,620
Liabilities and Equity
Accounts payable		$	68,141					$	137,175
Short-term notes payable			14,500						9,000
Total current liabilities			82,641						146,175
Long-term notes payable			57,500						63,750
Total liabilities			140,141						209,925
Equity
Common stock, $5 par value			185,250						165,250
Paid-in capital in excess of par, common stock			60,000						0
Retained earnings			173,320						117,445
Total liabilities and equity		$	558,711					$	492,620

  

FORTEN COMPANY Income Statement For Current Year Ended December 31
Sales				$	657,500
Cost of goods sold					300,000
Gross profit					357,500
Operating expenses
Depreciation expense	$	35,750
Other expenses		147,400			183,150
Other gains (losses)
Loss on sale of equipment					(20,125	)
Income before taxes					154,225
Income taxes expense					45,250
Net income				$	108,975

Additional Information on Current Year Transactions

1. The loss on the cash sale of equipment was $20,125 (details in b).
2. Sold equipment costing $91,875, with accumulated depreciation of $45,125, for $26,625 cash.
3. Purchased equipment costing $111,375 by paying $60,000 cash and signing a long-term note payable for the balance.
4. Borrowed $5,500 cash by signing a short-term note payable.
5. Paid $57,625 cash to reduce the long-term notes payable.
6. Issued 4,000 shares of common stock for $20 cash per share.
7. Declared and paid cash dividends of $53,100.

FORTEN COMPANY Spreadsheet for Statement of Cash Flows For Current Year Ended December 31 Analysis of Changes December 31, Prior Year Debit Credit December 31, Current Year Balance sheet—debit Cash $88,500 $72,400 Accounts receivable 65,625 Inventory 266,800 Prepaid expenses 2,195 Equipment 123,000 $546,120 Balance sheet—credit Accumulated depreciation—Equipment $53,500 Accounts payable 137,175 Short-term notes payable 9,000 Long-term notes payable 63,750 Common stock, $5 par value 165,250 Paid-in capital in excess of par value, common stock 0 Retained earnings 117,445 $546,120 Statement of cash flows Operating activities Investing activities Financing activities Non cash investing and financing activities Purchase of equipment financed by long-term note payable

Answer 1

Forten Company
Cash flow statement - Indirect method
For the year ended Dec 31 current year (amounts in $)
cash flow from operating activities
net income		108975
adjustments to reconcile net income to net cash flow from operating activities:
loss on sale of equipment	20125
depreciation expenses	35750
increase in accounts receivable	-22795
increase in inventory	-31356
decrease in prepaid expenses	835
decrease in accounts payable	-69034	-66475
net cash flow from operating activities		42500
cash flow fom invensting activities:
sale of equipment	26625
purchase of equipment	-60000
net cash flow from investing activities		-33375
cash flow from financing activities:
borrowings from short-term notes payable	5500
repayment of long-term notes payable	-57625
issuance of common stock	80000
payment of dividend	-53100
net cash flow from investing activities		-25225
net change in cash flow		-16100
cash balance at the beginning		88500
cash balance at the end		72400
non-cash investing and financing activities:
equipment acquired in exchange for notes payable		51375