Question

Use the following information for the Problems below.

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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		$	61,900					$	81,500
Accounts receivable			77,850						58,625
Inventory			287,656						259,800
Prepaid expenses			1,290						2,055
Total current assets			428,696						401,980
Equipment			149,500						116,000
Accum. depreciation—Equipment			(40,625	)					(50,000	)
Total assets		$	537,571					$	467,980
Liabilities and Equity
Accounts payable		$	61,141					$	126,675
Short-term notes payable			12,400						7,600
Total current liabilities			73,541						134,275
Long-term notes payable			61,000						56,750
Total liabilities			134,541						191,025
Equity
Common stock, $5 par value			174,750						158,250
Paid-in capital in excess of par, common stock			49,500						0
Retained earnings			178,780						118,705
Total liabilities and equity		$	537,571					$	467,980

  

FORTEN COMPANY Income Statement For Current Year Ended December 31
Sales				$	622,500
Cost of goods sold					293,000
Gross profit					329,500
Operating expenses
Depreciation expense	$	28,750
Other expenses		140,400			169,150
Other gains (losses)
Loss on sale of equipment					(13,125	)
Income before taxes					147,225
Income taxes expense					35,450
Net income				$	111,775

Additional Information on Current Year Transactions

1. The loss on the cash sale of equipment was $13,125 (details in b).
2. Sold equipment costing $70,875, with accumulated depreciation of $38,125, for $19,625 cash.
3. Purchased equipment costing $104,375 by paying $46,000 cash and signing a long-term note payable for the balance.
4. Borrowed $4,800 cash by signing a short-term note payable.
5. Paid $54,125 cash to reduce the long-term notes payable.
6. Issued 3,300 shares of common stock for $20 cash per share.
7. Declared and paid cash dividends of $51,700.

Problem 12-3A Indirect: Statement of cash flows LO A1, P2, P3

Required:
1. Prepare a complete statement of cash flows using the indirect method for the current year.

Answer 1

FORTEN COMPANY Statement of Cash Flows For Year Ended December 31, Current year Cash flows from operating activities Net Income Adjustments to reconcile net income to net cash provided by operations: Depreciation expense Loss on disposal of equipment 111,775 28,750 13,125 Changes in current assets and current liabilities Accounts receivable increase Inventory increase Prepaid expense decrease Accounts payable decrease - 19,225 - 27,856 765 65,534 Net cash provided by operating activities 41,800 Cash flows from investing activities Cash paid for equipment Cash received from sale of equipment Net cash used in investing activities - 46,000 19,625 - 26.375 Cash flows from financing activities: Cash borrowed on short-term note Cash paid on long-term note Cash received from issuing stock (3300*20) Cash paid for dividends Net cash used in financing activities Net increase (decrease) in cash Cash balance at December 31, Prior year Cash balance at December 31, Current year 4,800 54,125 66,000 - 51,700 - 35,025 - 19,600 81,500 61,900