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 $20,125 (details in b).

Sold equipment costing $91,875, with accumulated depreciation of $45,125, for $26,625 cash.

Purchased equipment costing $111,375 by paying $60,000 cash and signing a long-term note payable for the balance.

Borrowed $5,500 cash by signing a short-term note payable.

Paid $57,625 cash to reduce the long-term notes payable.

Issued 4,000 shares of common stock for $20 cash per share.

Declared and paid cash dividends of $53,100.

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

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Adjustments to reconcile net income to net cash provided by operations:

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$0

Cash flows from investing activities

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0

Cash flows from financing activities:

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0

Net increase (decrease) in cash

$0

Cash balance at beginning of year

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Cash balance at end of year

FORTEN COMPANY
Comparative Balance Sheets
December 31, 2017 and 2016 2017 2016 Assets Cash $ 72,400 $ 88,500 Accounts receivable 88,420 65,625 Inventory 298,156 266,800 Prepaid expenses 1,360 2,195 Total current assets 460,336 423,120 Equipment 142,500 123,000 Accum. depreciation—Equipment (44,125 ) (53,500 ) Total assets $ 558,711 $ 492,620 Liabilities and Equity Accounts payable $ 68,141 $ 137,175 Short-term notes payable 14,500 9,000 Total current liabilities 82,641 146,175 Long-term notes payable 57,500 63,750 Total liabilities 140,141 209,925 Equity Common stock, $5 par value 192,750 165,250 Paid-in capital in excess of par, common stock 52,500 0 Retained earnings 173,320 117,445 Total liabilities and equity $ 558,711 $ 492,620

Explanation / Answer

STATEMENT OF CASH FLOW Amount in $ Amount in $ Net income $          1,08,975 Cash flows from operating activities Adjustments for: Depreciation of the year $             35,750 Loss on sale of Equipment $             20,125 $             55,875 Effects/ changes in Assets & Liabilities (Increase) / Decrease in Account receivables $            -22,795 Inventory Decrease / (Increase) $            -31,356 Prepaid Expenses $                   835 Accounts payable Increase / ( Decrese) $            -69,034 $        -1,22,350 Net cash from operating activities $             42,500 Cash flows from investing activities Purchase of Equipment $            -60,000 Sale of Equipment $             26,625 Net cash used in investing activities $            -33,375 Cash flows from Financing activities Issue of Common Stock $             80,000 Short Term Note Payalbe Amt Borrowed $                5,500 Long Term Note $            -57,625 Dividend Paid $            -53,100 Net cash used in financing activities $            -25,225 Net increase in cash and cash equivalents $            -16,100 Add :Cash and cash equivalents at beginning of period $             88,500 Cash and cash equivalents at end of period $             72,400 CALCULATION OF LOSS ON SALE OF PLANT Purchase Value $             91,875 Less: Accumulated Depreciation $             45,125 Book Value of Equipment $             46,750 Less : Sale Value of Equipment $             26,625 Loss on Sale of Equipmet = $             20,125

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