Question

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
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			180,750						162,250
Paid-in capital in excess of par, common stock			55,500						0
Retained earnings			175,660						117,985
Total liabilities and equity		$	549,651					$	482,060

  

FORTEN COMPANY Income Statement For Current Year Ended December 31
Sales				$	642,500
Cost of goods sold					297,000
Gross profit					345,500
Operating expenses
Depreciation expense	$	32,750
Other expenses		144,400			177,150
Other gains (losses)
Loss on sale of equipment					(17,125	)
Income before taxes					151,225
Income taxes expense					41,050
Net income				$	110,175

 
Additional Information on Current Year Transactions

1. The loss on the cash sale of equipment was $17,125 (details in b).

2. Sold equipment costing $82,875, with accumulated depreciation of $42,125, for $23,625 cash.

3. Purchased equipment costing $108,375 by paying $54,000 cash and signing a long-term note payable for the balance.

4. Borrowed $5,200 cash by signing a short-term note payable.

5. Paid $56,125 cash to reduce the long-term notes payable.

6. Issued 3,700 shares of common stock for $20 cash per share.

7. Declared and paid cash dividends of $52,500.

Required:
Prepare a complete statement of cash flows using the direct method. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Cash flow Statement
Cash flows from operating activities.
Net income for the year		110175
Adjustment required for reconciliation
Depreciation			32750
Loss on sale of equipment		17125
Increase in Accounts receivable		-21265
Increase in Inventory			-29856
The decrease in Prepaid expense		805
The decrease in Accounts payable		-67534
Net cash provided from operating activities	42200
Cash flows from investing activities.
Sale of equipment			23625
Purchase of equipment		-54000
Net cash used in investing activities		-30375
Cash flows from financing activities.
Issuance of the short term note		5200
Repayment of the long term note		-56125
issuance of stock capital		74000
Dividend paid			-52500
Net cash used in financing activities		-29425
Net decrease in cash				-17600
Beginning balance of cash			85500
Ending balance of cash			67900
Noncash transactions:
Notes payable issued for purchase of equipment	54375