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	$	43,649		$	62,500
Accounts receivable		65,825			51,625
Inventory		274,156			249,800
Prepaid expenses		1,220			1,625
Total current assets		384,850			365,550
Equipment		143,025			101,000
Accum. depreciation—Equipment		(33,850)			(41,000)
Total assets	$	494,025		$	425,550
Liabilities and Equity
Accounts payable	$	59,975		$	108,350
Short-term notes payable		6,200			4,100
Total current liabilities		66,175			112,450
Long-term notes payable		37,625			33,500
Total liabilities		103,800			145,950
Equity
Common stock, $5 par value		153,250			145,250
Paid-in capital in excess of par, common stock		24,000			0
Retained earnings		212,975			134,350
Total liabilities and equity	$	494,025		$	425,550

FORTEN COMPANY Income Statement For Year Ended December 31, 2015
Sales				$	587,500
Cost of goods sold					287,000
Gross profit					300,500
Operating expenses
Depreciation expense	$	18,100
Other expenses		128,100			146,200
Other gains (losses)
Loss on sale of equipment					(4,025)
Income before taxes					150,275
Income taxes expense					26,250
Net income				$	124,025

Additional Information on Year 2015 Transactions
a.	The loss on the cash sale of equipment was $4,025 (details in b).
b.	Sold equipment costing $43,425, with accumulated depreciation of $25,250, for $14,150 cash.
c.	Purchased equipment costing $85,450 by paying $41,000 cash and signing a long-term note payable for the balance.
d.	Borrowed $2,100 cash by signing a short-term note payable.
e.	Paid $40,325 cash to reduce the long-term notes payable.
f.	Issued 1,600 shares of common stock for $20 cash per share.
g.	Declared and paid cash dividends of $45,400.

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.)

FORTEN COMPANY
Statement of Cash Flows
For Year Ended December 31, 2015
Cash flows from operating activities
Net Income	$124,025
Adjustments to reconcile net income to net cash provided by operations:
Accounts payable decrease
Accounts receivable increase
Depreciation expense	18,100
Inventory increase
Loss on disposal of equipment	4,025
Prepaid expense decrease
Net cash provided by operating activities		$146,150
Cash flows from investing activities
Cash paid for equipment
Cash received from sale of equipment	14,150
Net cash used in investing activities		14,150
Cash flows from financing activities:
Cash borrowed on short-term note	2,100
Cash paid for dividends	45,400
Cash paid on long-term note
Cash received from issuing stock
Net cash used in financing activities		47,500
Net increase (decrease) in cash		$207,800
Cash balance at beginning of year
Cash balance at end of year		$207,800

     

     

Answer 1

FORTEN COMPANY
Statement of Cash Flows
For Year Ended December 31, 2015
Cash flows from operating activities
Net Income	$124,025
Adjustments to reconcile net income to net cash provided by operations:
Depreciation expense	$18,100
Loss on disposal of equipment	$4,025
Accounts receivable increase	-$14,200
Prepaid expense decrease	$405
Inventory increase	-$24,356
Accounts payable decrease	-$48,375
Net cash provided by operating activities		$59,624
Cash flows from investing activities
Cash paid for equipment	-$41,000
Cash received from the sale of equipment	$14,150
Net cash used in investing activities		-$26,850
Cash flows from financing activities:
Cash borrowed on short-term note	$2,100
Cash paid for dividends	-$45,400
Cash paid on a long-term note	-$40,325
Cash received from issuing stock	$32,000
Net cash used in financing activities		-$51,625
Net increase (decrease) in cash		-$18,851
Cash balance at beginning of the year		$62,500
Cash balance at end of year		$43,649
Non Cash Activity
Investing Activity
Purchase equipment by signing a long-term note payable	-$44,450
Financing Activity
Purchase equipment by signing a long-term notes payable	$44,450