Question

Forten Company's current year income statement, comparative balance sheets, and additional information follow. 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.

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
Statement of Cash Flows
For Current Year Ended December 31
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operations:
		$0
Cash flows from investing activities
		0
Cash flows from financing activities:
		0
Net increase (decrease) in cash		$0
Cash balance at December 31, prior year
Cash balance at December 31, current year		$0

Answer 1

Cash Flow Statement (Indirect Method)
Particulars	Amount	Amount
Net Income		$    108,975.00
Adjustments to reconcile net income to:
Net cash provided by operating activities
Depreciation	$      35,750.00
Loss on sale of Equipment	$      20,125.00
Increase in Accounts Receivable	$    (22,795.00)
Increase in Inventory	$    (31,356.00)
Decrease in Prepayments	$           835.00
Increase in Short term Notes Payable	$        5,500.00
Decrease in Accounts Payable	$    (69,034.00)
Net Cash Generated		$    (60,975.00)
Net cash provided by operating activities	(A)	$      48,000.00
Cash Flows from Investing Activities
Purchase of Equipment	$    (60,000.00)
Sale of Equipment	$      26,625.00
Net cash provided by investing activities	(B)	$    (33,375.00)
Cash Flows from Financing Activities
Dividend Paid	$    (53,100.00)
Reduction in Long term Notes Payable	$    (57,625.00)
Increase in Common Stock	$      80,000.00
Net cash provided by Financing activities	(C')	$    (30,725.00)
Net increase/decrease in cash	(A+B+C')	$    (16,100.00)
Add:Opening cash balance		$      88,500.00
Closing cash balance		$      72,400.00