Question

Required information (The following information applies to the questions displayed below.) Forten Company's current year income statement, comparative balance sheets, and additional information follow. 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. FORTEN COMPANY Comparative Balance Sheets December 31 Current Year Prior Year $ 57,400 73,320 283, 156 1,260 415,136 152,500 (39,125) $528,511 $ 78,500 55,625 256,800 1,995 392,920 113,000 ( 48,500) $ 457, 420 Assets Cash Accounts receivable Inventory Prepaid expenses Total current assets Equipment Accum. depreciation-Equipment Total assets Liabilities and Equity Accounts payable Short-term notes payable Total current liabilities Long-term notes payable Total liabilities Equity Common stock, $5 par value Paid-in capital in excess of par, common stock Retained earnings Total liabilities and equity $ 58,141 11,500 69,641 62,500 132,141 $ 122,175 7,000 129, 175 53, 750 182,925 155, 250 170,250 45,000 181,120 $528,511 119, 245 $ 457, 420

Answer 1

Solution

FORTEN COMPANY
Cash Flow Statement
For the ended december 31, 2016
Cash Flow from Operating Activities:
Net Income	$     112,975.00
Adjustments to reconcile net income to net cash provided by operations:
Loss on sale of Equipment	$        10,125.00
Depreciation expense	$        25,750.00
Increase in Accounts receivables	$     (17,695.00)
Increase in Inventory	$     (26,356.00)
Decrease in prepaid expense	$              735.00
Decrease in accounts payable	$     (64,034.00)
A. Cash Flow from Operating Activities		$         41,500.00
Cash Flow from Investing Activities:
Sale of Equipment	$        16,625.00
Purchase of Equipment	$     (40,000.00)
B. Cash flow from Investing Activities		$       (23,375.00)
Cash Flow from Financing Activities:
Issue of Common Stock	$        60,000.00
Dividend paid	$     (51,100.00)
Proceeds from short term notes payable	$          4,500.00
Retirement of long term notes payable	$     (52,625.00)
C. Cash Flow from Financing Activities		$       (39,225.00)
Increase (Decrease) in cash [A+B+C]		$       (21,100.00)
Add: cash at the beginning of the year		$         78,500.00
Cash at the end of the year		$         57,400.00

.General notes for cash flow
Cash is increased when Current liability increase or Current asset Decrease.
Cash is Decreased when Current liability Decrease or Current asset Increase.
Depreciation or loss on sale of any asset is a non cash expense hence it will be added to net income to get operating cash
Profit on sale of asset or investment is a non cash profit and hence will be deducted from operating income.