Question

Forten Company, a merchandiser, recently completed its calendar-year 2015 operations. For the year, (1) all sales...

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:
18,100
4,025
$146,150
Cash flows from investing activities
14,150
14,150
Cash flows from financing activities:
2,100
45,400
47,500
Net increase (decrease) in cash $207,800
Cash balance at beginning of year
Cash balance at end of year $207,800

     

     

Homework Answers

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
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