Forten Company, a merchandiser, recently completed its calendar-year 2015 operat

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 $ 50,000 $ 74,000 Accounts receivable 65,870 54,000 Inventory 275,500 252,500 Prepaid expenses 1,500 1,600 Total current assets 392,870 382,100 Equipment 157,500 107,500 Accum. depreciation—Equipment (35,625) (46,000) Total assets $ 514,745 $ 443,600 Liabilities and Equity Accounts payable $ 57,395 $ 114,000 Short-term notes payable 12,000 7,000 Total current liabilities 69,395 121,000 Long-term notes payable 65,000 48,750 Total liabilities 134,395 169,750 Equity Common stock, $5 par value 162,750 151,000 Paid-in capital in excess of par, common stock 35,250 0 Retained earnings 182,350 122,850 Total liabilities and equity $ 514,745 $ 443,600 FORTEN COMPANY Income Statement For Year Ended December 31, 2015 Sales $ 582,000 Cost of goods sold 289,000 Gross profit 293,000 Operating expenses Depreciation expense $ 20,000 Other expenses 132,400 152,400 Other gains (losses) Loss on sale of equipment (5,000) Income before taxes 135,600 Income taxes expense 23,000 Net income $ 112,600 Additional Information on Year 2015 Transactions a. Net income was $112,600. b. Accounts receivable increased. c. Inventory increased. d. Prepaid expenses decreased. e. Accounts payable decreased. f. Depreciation expense was $20,000. g. Sold equipment costing $46,875, with accumulated depreciation of $30,375, for $11,500 cash. This yielded a loss of $5,000. h. Purchased equipment costing $96,875 by paying $25,000 cash and (i.) by signing a long-term note payable for the balance. j. Borrowed $5,000 cash by signing a short-term note payable. k. Paid $55,625 cash to reduce the long-term notes payable. l. Issued 2,350 shares of common stock for $20 cash per share. m. Declared and paid cash dividends of $53,100. Required: Prepare a complete statement of cash flows using a spreadsheet; report its operating activities using the indirect method. (Enter all amounts as positive values.)

Explanation / Answer

Forten Company (All values in $) Cash Flow Statement (Indirect Method) as on 31 December 2015 Net Cash Flows from Operating Activities Net Income for the year 112600 Add : Depreciation for the year 20000 Add : Loss on Sale of Equipment 5000 25000 Cash flows before Working Capital changes 137600 Less : Increase in Accounts Receivable -11870 Less : Increase in Inventory -23000 Add : Decrease in Prepaid Expense 100 Add : Increase in Short Term Notes Payable 5000 Less : Decrease in Accounts Payable -56605 -86375 Net Cash Inflows from Operating Activities 51225 Net Cash Flows from Investing Activities Purchase of Equipment -96875 Sale of Equipment 11500 Net Cash Outflows from Investing Activities -85375 Net Cash Flows from Financing Activities Issue of Notes Payable for purchase of equipment 71875 Repayment of Long Term Notes Payable -55625 Share Capital Issued 47000 Dividends Declared and Paid -53100 Net Cash Inflows from Financing Activities 10150 Net Decrease in Cash and Cash Equivalents -24000 Opening Cash and Bank Balance 74000 Closing Cash and Bank Balance 50000

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