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	$	76,900			$	91,500
Accounts receivable		92,950				68,625
Inventory		302,656				269,800
Prepaid expenses		1,390				2,255
Total current assets		473,896				432,180
Equipment		139,500				126,000
Accum. depreciation—Equipment		(45,625	)			(55,000	)
Total assets	$	567,771			$	503,180
Liabilities and Equity
Accounts payable	$	71,141			$	141,675
Short-term notes payable		15,400				9,600
Total current liabilities		86,541				151,275
Long-term notes payable		56,000				66,750
Total liabilities		142,541				218,025
Equity
Common stock, $5 par value		198,750				168,250
Paid-in capital in excess of par, common stock		55,500				0
Retained earnings		170,980				116,905
Total liabilities and equity	$	567,771			$	503,180

  

FORTEN COMPANY Income Statement For Year Ended December 31, 2017
Sales				$	672,500
Cost of goods sold					303,000
Gross profit					369,500
Operating expenses
Depreciation expense	$	38,750
Other expenses		150,400			189,150
Other gains (losses)
Loss on sale of equipment					(23,125	)
Income before taxes					157,225
Income taxes expense					49,450
Net income				$	107,775

Additional Information on Year 2017 Transactions

The loss on the cash sale of equipment was $23,125 (details in b).

Sold equipment costing $100,875, with accumulated depreciation of $48,125, for $29,625 cash.

Purchased equipment costing $114,375 by paying $66,000 cash and signing a long-term note payable for the balance.

Borrowed $5,800 cash by signing a short-term note payable.

Paid $59,125 cash to reduce the long-term notes payable.

Issued 4,300 shares of common stock for $20 cash per share.

Declared and paid cash dividends of $53,700.

Answer 1

Cash flow Statement:
Cash flows from Operatin g activities
Net income for the year				107775
Adjustment required
Depreciation				38750
Loss on sale fo equipment				23125
Increase in Accounts payable				-24325
Increase in Inventory				-32856
Decrease in Prepaid expense				865
Decrease in Accounts payable				-70534
Net cash provided from Operating activities					42800
Cash flows from Investing activities:
Sale of equipment				29625
Purchase of equipment				-66000
Net cash used in Investing activities					-36375
Cash flows from Financing activities:
Borrowings on short term notes				5800
Repayment of long term notes				-59125
Issue of Common Stock				86000
Dividen d paid				-53700
Net cash used in financing activities					-21025
Net decrease in cash					-14600
Beginning balance of cash					91500
Ending cash balance					77900
Cash flow Statement:
Cash flows from Operatin g activities
Cash received from Accounts receivable (672500+68625-92950)						648175
Cash paid for inventory (303000+302656-269800+141675-71141)						-406390
Cash paid for operating expense (150400+1390-2255)						-149535
Income tax paid						-49450
Net cash provided from Operating activities							42800
Cash flows from Investing activities:
Sale of equipment						29625
Purchase of equipment						-66000
Net cash used in Investing activities							-36375
Cash flows from Financing activities:
Borrowings on short term notes						5800
Repayment of long term notes						-59125
Issue of Common Stock						86000
Dividen d paid						-53700
Net cash used in financing activities							-21025
Net decrease in cash							-14600
Beginning balance of cash							91500
Ending cash balance							77900