Question

Forten Company, a merchandiser, recently completed its calendar-year 2015 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, 2015 and 2014 2015 2014 Assets Cash $ 54,969 $ 69,500 Accounts receivable 75,625 58,625 Inventory 263,656 235,800 Prepaid expenses 1,500 1,975 Total current assets 395,750 365,900 Equipment 157,375 115,000 Accum. depreciation—Equipment (48,550) (55,000) Total assets $ 504,575 $ 425,900 Liabilities and Equity Accounts payable $ 58,575 $ 110,450 Short-term notes payable 9,000 5,500 Total current liabilities 67,575 115,950 Long-term notes payable 31,925 40,500 Total liabilities 99,500 156,450 Equity Common stock, $5 par value 163,750 148,750 Paid-in capital in excess of par, common stock 45,000 0 Retained earnings 196,325 120,700 Total liabilities and equity $ 504,575 $ 425,900 FORTEN COMPANY Income Statement For Year Ended December 31, 2015 Sales $ 622,500 Cost of goods sold 301,000 Gross profit 321,500 Operating expenses Depreciation expense $ 19,500 Other expenses 141,250 160,750 Other gains (losses) Loss on sale of equipment (4,375) Income before taxes 156,375 Income taxes expense 29,750 Net income $ 126,625 Additional Information on Year 2015 Transactions a. The loss on the cash sale of equipment was $4,375 (details in b). b. Sold equipment costing $45,175, with accumulated depreciation of $25,950, for $14,850 cash. c. Purchased equipment costing $87,550 by paying $53,000 cash and signing a long-term note payable for the balance. d. Borrowed $3,500 cash by signing a short-term note payable. e. Paid $43,125 cash to reduce the long-term notes payable. f. Issued 3,000 shares of common stock for $20 cash per share. g. Declared and paid cash dividends of $51,000. 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.)

Answer 1

FORTEN COMPANY
Statement of Cash Flows
For Year Ended December 31, 2015
Cash flows from operating activities
Net Income	126,625
Adjustments to reconcile net income to net cash provided by operations:
Depreciation expense	19,500
Accounts receivable increase	(17,000)
Inventory increase	(27,856)
Prepaid expense decrease	475
Accounts payable decrease	(51,875)
Loss on disposal of equipment	4,375
Net cash provided by operating activities		54,244
Cash flows from investing activities
Cash paid for equipment	(53,000)
Cash received from sale of equipment	14,850
Net cash used in investing activities		(38,150)
Cash flows from financing activities:
Cash borrowed on short-term note	3,500
Cash paid on long-term note	(43,125)
Cash received from issuing stock 3000*20	60,000
Cash paid for dividends	(51,000)
Net cash used in financing activities		(30,625)
Net increase (decrease) in cash		(14,531)
Cash balance at beginning of year		69,500
Cash balance at end of year		54,969