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 Prior Year Current Year Assets Cash $ 63,400 79,360 $ 82,500 59,625 260,800 Accounts receivable Inventory Prepaid expenses Total current assets Equipment Accum. depreciation-Equipment 289, 156 1,300 433,216 148,500 (41,125) 2,075 405,000 117,000 (50,500) $471,500 $540,591 Total assets Liabilities and Equity $62,141 12,700 74,841 60,500 135,341 $128,175 7,800 135,975 57,750 193,725 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 159,250 176,250 51,000 118,525 $471,500 178,000 $540,591 Total liabilities and equity

Answer 1

The cash flow statement under Indirect method will be prepared as follows:

	$
Cash Flows from Operating Activities:
Net Income	1,11,375
Depreciation expense	29,750
Loss on sale of equipment	14,125
Increase in Accounts Receivable	-19,735
Increase in Inventory	-28,356
Decrease in Prepaid expenses	775
Decrease in Accounts Payable	-66,034
Cash Flows from Operating Activities:	41,900
Cash Flows from Investing Activities:
Purchase of Equipment	-48,000
Cash received from sale of equipment	20,625
Cash Used in Investing Activities:	-27,375
Cash Flows from Financing Activities:
Borrowings against short term notes	4900
Repayment of long term notes	-54,625
Stock issued	68,000
Payment of cash dividends	-51,900
Cash Used in Financing Activities:	-33,625
Net Decrease in Cash	-19,100
Add: Beginning Cash balance	82,500
Ending Cash Balance	63,400

Notes

A cash flow statement has 3 components:

• Cash from Operating Activities - primarily shows cash generated and used in the main operations of the company including changes in current assets and liabilities
• Cash from Investing Activities - primarily deals with cash used and spent on long term assets like PP&E
• Cash from Financing Activities - primarily shows cash used and spent on long term liabilities and equity

There are 2 methods to prepare a cash flow statement - Direct and Indirect. Only the Cash from Operating Activities changes under the 2 methods Rest all remains the same.

Workings Cash Flows from Operating Activities: Net Income Depreciation expense Loss on sale of equipment Increase in Accounts Receivable Increase in Inventory Decrease in Prepaid expenses Decrease in Accounts Payable Cash Flows from Operating Activities: 1,11,375 given 29,750 given 14,125 given - 19,735 59625-79360 -28,356 260800-289156 775 2075-1300 -66,034 62141-128175 41,900 Cash Flows from Investing Activities: Purchase of Equipment Cash received from sale of equipment Cash Used in Investing Activities: -48,000 only cash paid will be considered 20,625 -27,375 Cash Flows from Financing Activities: Borrowings against short term notes Repayment of long term notes Stock issued Payment of cash dividends Cash Used in Financing Activities: 4900 given -54,625 given 68.000 3400*20 -51,900 given -33,625 Net Decrease in Cash Add: Beginning Cash balance Ending Cash Balance -19,100 CFO+CFICFF 82,500 given 63,400