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	$	67,900			$	85,500
Accounts receivable		83,890				62,625
Inventory		293,656				263,800
Prepaid expenses		1,330				2,135
Total current assets		446,776				414,060
Equipment		145,500				120,000
Accum. depreciation—Equipment		(42,625	)			(52,000	)
Total assets	$	549,651			$	482,060
Liabilities and Equity
Accounts payable	$	65,141			$	132,675
Short-term notes payable		13,600				8,400
Total current liabilities		78,741				141,075
Long-term notes payable		59,000				60,750
Total liabilities		137,741				201,825
Equity
Common stock, $5 par value		186,750				162,250
Paid-in capital in excess of par, common stock		49,500				0
Retained earnings		175,660				117,985
Total liabilities and equity	$	549,651			$	482,060

  

FORTEN COMPANY Income Statement For Year Ended December 31, 2017
Sales				$	642,500
Cost of goods sold					297,000
Gross profit					345,500
Operating expenses
Depreciation expense	$	32,750
Other expenses		144,400			177,150
Other gains (losses)
Loss on sale of equipment					(17,125	)
Income before taxes					151,225
Income taxes expense					41,050
Net income				$	110,175

Additional Information on Year 2017 Transactions

The loss on the cash sale of equipment was $17,125 (details in b).

Sold equipment costing $82,875, with accumulated depreciation of $42,125, for $23,625 cash.

Purchased equipment costing $108,375 by paying $54,000 cash and signing a long-term note payable for the balance.

Borrowed $5,200 cash by signing a short-term note payable.

Paid $56,125 cash to reduce the long-term notes payable.

Issued 3,700 shares of common stock for $20 cash per share.

Declared and paid cash dividends of $52,500.

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, 2017
Cash flows from operating activities
Net income	$110,175
Adjustments to reconcile net income to net cash provided by operations:
Depreciation expense
		$110,175
Cash flows from investing activities
		0
Cash flows from financing activities:
		0
Net increase (decrease) in cash		$110,175
Cash balance at beginning of year
Cash balance at end of year		$110,175

Answer 1

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