Forten Company, a merchandiser, recently completed its calendar-year 2017 operat
ID: 2544292 • Letter: F
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 $24,125 (details in b).
Sold equipment costing $103,875, with accumulated depreciation of $49,125, for $30,625 cash.
Purchased equipment costing $115,375 by paying $68,000 cash and signing a long-term note payable for the balance.
Borrowed $5,900 cash by signing a short-term note payable.
Paid $59,625 cash to reduce the long-term notes payable.
Issued 4,400 shares of common stock for $20 cash per share.
Declared and paid cash dividends of $53,900.
Required:
Prepare a complete statement of cash flows; report its operating activities according to the direct method. (Amounts to be deducted should be indicated with a minus sign.)
Comparative Balance Sheets
December 31, 2017 and 2016 2017 2016 Assets Cash $ 78,400 $ 92,500 Accounts receivable 94,460 69,625 Inventory 304,156 270,800 Prepaid expenses 1,400 2,275 Total current assets 478,416 435,200 Equipment 138,500 127,000 Accum. depreciation—Equipment (46,125 ) (55,500 ) Total assets $ 570,791 $ 506,700 Liabilities and Equity Accounts payable $ 72,141 $ 143,175 Short-term notes payable 15,700 9,800 Total current liabilities 87,841 152,975 Long-term notes payable 55,500 67,750 Total liabilities 143,341 220,725 Equity Common stock, $5 par value 200,750 169,250 Paid-in capital in excess of par, common stock 56,500 0 Retained earnings 170,200 116,725 Total liabilities and equity $ 570,791 $ 506,700
Explanation / Answer
FORTEN COMPANY
Statement of cash flows
For Year Ended December 31, 2017
Cash flow from operating activities
Net income
1,07,375
Adjustment to reconcile net income to net cash provided by operations
Depreciation expense
39,750
Accounts receivable increase
(24,835)
Inventory increase
(33,356)
Prepaid expense decrease
875
Accounts payable decrease
(71,034)
Loss on disposal of equipment
24,125
Net cash provided by operating activities
42,900
Cash flow from investing activities
Cash paid for equipment
(68,000)
Cash received from sale of equipment
30,625
Net cash used in investing activities
(37,375)
Cash flow from financing activities
Cash borrowed on short-term note
5900
Cash paid on long-term note
(59625)
Cash received from issuing stock
8,8000
Cash paid for dividends
(53,900)
Net cash used in financing activities
(19,625)
Net increase (decrease) in cash (14,100)
Cash balance at beginning of year 92,500
Cash balance at the end of year 78,400
Increase in accounts receivable = 94460-69625 = 24835
Increase in inventory = 304156 – 270800 = 33356
Decrease in prepaid expense = 2275 – 1400 = 875
Decrease in accounts payable = 72141 – 143175 = 71034
Cash received from issuing stock = 4400 x 20 = 88000
FORTEN COMPANY
Statement of cash flows
For Year Ended December 31, 2017
Cash flow from operating activities
Net income
1,07,375
Adjustment to reconcile net income to net cash provided by operations
Depreciation expense
39,750
Accounts receivable increase
(24,835)
Inventory increase
(33,356)
Prepaid expense decrease
875
Accounts payable decrease
(71,034)
Loss on disposal of equipment
24,125
Net cash provided by operating activities
42,900
Cash flow from investing activities
Cash paid for equipment
(68,000)
Cash received from sale of equipment
30,625
Net cash used in investing activities
(37,375)
Cash flow from financing activities
Cash borrowed on short-term note
5900
Cash paid on long-term note
(59625)
Cash received from issuing stock
8,8000
Cash paid for dividends
(53,900)
Net cash used in financing activities
(19,625)
Net increase (decrease) in cash (14,100)
Cash balance at beginning of year 92,500
Cash balance at the end of year 78,400
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