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	$	69,400			$	86,500
Accounts receivable		85,400				63,625
Inventory		295,156				264,800
Prepaid expenses		1,340				2,155
Total current assets		451,296				417,080
Equipment		144,500				121,000
Accum. depreciation—Equipment		(43,125	)			(52,500	)
Total assets	$	552,671			$	485,580
Liabilities and Equity
Accounts payable	$	66,141			$	134,175
Short-term notes payable		13,900				8,600
Total current liabilities		80,041				142,775
Long-term notes payable		58,500				61,750
Total liabilities		138,541				204,525
Equity
Common stock, $5 par value		188,750				163,250
Paid-in capital in excess of par, common stock		50,500				0
Retained earnings		174,880				117,805
Total liabilities and equity	$	552,671			$	485,580

  

FORTEN COMPANY Income Statement For Year Ended December 31, 2017
Sales				$	647,500
Cost of goods sold					298,000
Gross profit					349,500
Operating expenses
Depreciation expense	$	33,750
Other expenses		145,400			179,150
Other gains (losses)
Loss on sale of equipment					(18,125	)
Income before taxes					152,225
Income taxes expense					42,450
Net income				$	109,775

Additional Information on Year 2017 Transactions

1. The loss on the cash sale of equipment was $18,125 (details in b).
2. Sold equipment costing $85,875, with accumulated depreciation of $43,125, for $24,625 cash.
3. Purchased equipment costing $109,375 by paying $56,000 cash and signing a long-term note payable for the balance.
4. Borrowed $5,300 cash by signing a short-term note payable.
5. Paid $56,625 cash to reduce the long-term notes payable.
6. Issued 3,800 shares of common stock for $20 cash per share.
7. Declared and paid cash dividends of $52,700.

Required:
1. Prepare a complete statement of cash flows; report its operating activities using the indirect method.

FORTEN COMPANY Statement of Cash Flows For Year Ended December 31, 2017 Cash flows from operating activities Adjustments to reconcile net income to net cash provided by operations: 0 Cash flows from investing activities Cash flows from financing activities: Net increase (decrease) in cash Cash balance at beginning of year Cash balance at end of year 0 $ 0

Answer 1

$ 109.775 FORTEN COMPANY Statement of Cash Flows For year Ended December 31, 2017 Cash flows from operating activities Net Income Addustments to reconcile net income to net cash provided by operations: Depreciation Loss on Sale of Equipment Increse in accounts receivables Increase in Inventory Decrease in Prepaid Expenses Decrease in Accounts payable Decrease in Short - Term notes payable Net cash flow From operating activities $ 33,750 $ 18.125 $ 51.875 S (21,775) $ (30,356) $ 815 S (68.034) $ 5,300S(114.050) $ 47,600 Cash flows from investing activities: Cash provided by sale of Equipment Cash used to Purchase of Equipment Net cash flow from investing activities $ 24.625 $(109.375) S (84,750)

S (52.700) $ (3,250) S 76.000 Cash flows from Financing activities: Cash used for dividends Cash used for Long Term Note payable cash provided for Issueance of Common stock Net cash flow from financing activities Net Increase (decrease) in cash Cash balance at beginning year cash balance at end of year $ 20,050 S (17,100) $ 86,500 $ 69,400 Working Notes : Payment of Long Term Note Payable Opening balance of Long term note payable Less: Closing Balance of Long term note payable $ 61,750 $ 58,500 S 3,250