Forten Company, a merchandiser, recently completed its calendar-year 2017 operat

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.

  

Additional Information on Year 2017 Transactions

The loss on the cash sale of equipment was $21,125 (details in b).

Sold equipment costing $94,875, with accumulated depreciation of $46,125, for $27,625 cash.

Purchased equipment costing $112,375 by paying $62,000 cash and signing a long-term note payable for the balance.

Borrowed $5,600 cash by signing a short-term note payable.

Paid $58,125 cash to reduce the long-term notes payable.

Issued 4,100 shares of common stock for $20 cash per share.

Declared and paid cash dividends of $53,300.

a)Prepare a complete statement of cash flows; report its operating activities according to the direct method.

FORTEN COMPANY
Comparative Balance Sheets
December 31, 2017 and 2016 2017 2016 Assets Cash $73,900 $89,500 Accounts receivable 89,930 66,625 Inventory 299,656 267,800 Prepaid expenses 1,370 2,215 Total current assets 464,856 426,140 Equipment 141,500 124,000 Accum. depreciation—Equipment (44,625) (54,000) Total assets $561,731 $496,140 Liabilities and Equity Accounts payable $69,141 $138,675 Short-term notes payable 14,800 9,200 Total current liabilities 83,941 147,875 Long-term notes payable 57,000 64,750 Total liabilities 140,941 212,625 Equity Common stock, $5 par value 194,750 166,250 Paid-in capital in excess of par, common stock 53,500 0 Retained earnings 172,540 117,265 Total liabilities and equity $561,731 $496,140 C Chapler 16 Homewoik ixciHxCpler 16-Hoework Chttps://newconnect.mheducation.com/flow/connect html for Statement of Cash Fl For Year Ended December 31, 2017 Analysis of Changas Ealance shest-dobit 88,825 2.21 ccounts payabic Short-term notes Long term nates payable Common stack, $5 Paid-n captal in cAas of par valus, cemmon stock 117.285 Operating actmties Non cash invasting and financing aclivites Purchase af aquiement snanced by long-term note payabla 10:2? PM Type here to search 9/212018

Explanation / Answer

FORTEN COMPANY Spreadsheet for Statement of Cash Flows For Year Ended December 31, 2017 December 31,2016 Analysis of Changes December 31,2017 Debit Credit Balance sheet—debits Cash $89,500.00 $73,900.00 Accounts receivable $66,625.00 $23,305.00 $89,930.00 Inventory $267,800.00 $31,856.00 $299,656.00 Prepaid expenses $2,215.00 $845.00 $1,370.00 Equipment $124,000.00 $112,375.00 $94,875.00 $141,500.00 Balance sheet--credits Accum. depreciation—Equip. $54,000.00 $46,125.00 $36,750.00 $44,625.00 Accounts payable $138,675.00 $69,534.00 $69,141.00 Short-term notes payable $9,200.00 $5,600.00 $14,800.00 Long-term notes payable $64,750.00 $58,125.00 $50,375.00 $57,000.00 Common stock, $5 par value $166,250.00 $28,500.00 $194,750.00 Paid-in capital in excess of par value, common stock $0.00 $53,500.00 $53,500.00 Retained earnings $117,265.00 $53,300.00 $108,575.00 $172,540.00 Statement of cash flows Operating activities Net income $108,575.00 Increase in accts. receivable $23,305.00 Increase in merch. inventory $31,856.00 Decrease in prepaid expenses $845.00 Decrease in accounts payable $69,534.00 Depreciation expense $36,750.00 Loss on sale of equipment $21,125.00 Investing activities Receipt from sale of equipment $27,625.00 Payment to purchase equipment $62,000.00 Financing activities Borrowed on short-term note $5,600.00 Payment on long-term note $58,125.00 Issued common stock for cash $82,000.00 Payments of cash dividends $53,300.00 Noncash investing and financing activities Purchase of equip. financed $50,375.00 $50,375.00 by long-term note payable $727,515.00 $727,515.00 atement of Cash Flows For Year Ended December 31, 2017 Cash flows from operating activities Cash received from customers (Note 1) $639,195.00 Cash paid for inventory (Note 2) -$402,390.00 Cash paid for other expenses (Note 3) -$147,555.00 Cash paid for income taxes -$46,650.00 Net cash provided by operating activities $42,600.00 Cash flows from investing activities Cash received from sale of equipment $27,625.00 Cash paid for equipment -$62,000.00 Net cash used in investing activities -$34,375.00 Cash flows from financing activities Cash borrowed on short-term note $5,600.00 Cash paid on long-term note -$58,125.00 Cash received from issuing stock (4,100 x $20) $82,000.00 Cash paid for dividends -$53,300.00 Net cash used in financing activities -$23,825.00 Net decrease in cash -$15,600.00 Cash balance at December 31, 2016 $89,500.00 Cash balance at December 31, 2017 $73,900.00 1) Sales - Increase in receivables 2) COGS + Increase in inventory + Decrease in A/p 3) Other expenses - Decrease in prepaid expenses

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