[The following information applies to the questions displayed below.] Forten Com
ID: 2599102 • Letter: #
Question
[The following information applies to the questions displayed below.]
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
a.The loss on the cash sale of equipment was $17,125 (details in b).
b.Sold equipment costing $82,875, with accumulated depreciation of $42,125, for $23,625 cash.
c.Purchased equipment costing $108,375 by paying $54,000 cash and signing a long-term note payable for the balance.
d.Borrowed $5,200 cash by signing a short-term note payable.
e.Paid $56,125 cash to reduce the long-term notes payable.
f.Issued 3,700 shares of common stock for $20 cash per share.
g.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.)
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
Explanation / Answer
cash flow statement
Indirect Method
cash flow from operating activities
income before taxes
151225
add depreciation
32750
loss on sale of equipment
17125
cash flow changes from working capital
-112650
increase in accounts receivables
-21265
increase in inventory
-29856
decrease of prepaid expenses
805
decrease in accounts payable
-67534
increase in notes payable
5200
less income tax
-41050
cash flow from operating activities
47400
cash flow from investing activities
sale proceeds from sale of equipment
23625
payment towards the purchase of equipment
-54000
cash flow from investing activities
-30375
cash flow from operating activities
-34625
proceeds from sale of shares
74000
payment of notes payable
-56125
payment of cash dividend
-52500
cash flow from operations
47400+(-30375)+(-34625)
-17600
opening balance of cash
85500
closing balance
67900
cash flow statement
Indirect Method
cash flow from operating activities
income before taxes
151225
add depreciation
32750
loss on sale of equipment
17125
cash flow changes from working capital
-112650
increase in accounts receivables
-21265
increase in inventory
-29856
decrease of prepaid expenses
805
decrease in accounts payable
-67534
increase in notes payable
5200
less income tax
-41050
cash flow from operating activities
47400
cash flow from investing activities
sale proceeds from sale of equipment
23625
payment towards the purchase of equipment
-54000
cash flow from investing activities
-30375
cash flow from operating activities
-34625
proceeds from sale of shares
74000
payment of notes payable
-56125
payment of cash dividend
-52500
cash flow from operations
47400+(-30375)+(-34625)
-17600
opening balance of cash
85500
closing balance
67900
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