12 Prob 2-3

Required information The following information applies to the questions displayed below. 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. FORTEN COMPANY Comparative Balance Sheets December 31, 2017 and 2016 2017 2016 AssetS Cash Accounts receivable Inventory Prepaid expenses Total current assets Equipment Accum. depreciation-Equipment Total assets $75,40090,500 67,625 268,800 2,235 91,440 301,156 1,38029 429,160 125,000 (45,125) (54,50e $ 564,751 499,660 469,376 140,500 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 $ 70,141 15,100 85,241 56,500 141,741 140,175 9,400 149,575 65,/>0 215,325 196,750 54,500 167,250 171,760 117,085 $ 564,751 499,660 FORTEN COMPANY Income Statement For Year Ended December 31, 2017 Sales Cost of goods sold Gross profit Operating expenses $667,500 302,000 365, 50e Depreciation expense $ 37,750 Other expenses Other gains (losses) 149,400 187,150 Loss on sale of equipment Income before taxes Income taxes expense Net income 22,125 156, 225 48,050 $ 108,175 Additional Information on Year 2017 Transactions a. The loss on the cash sale of equipment was $22,125 (details in b) b. Sold equipment costing $97,875, with accumulated depreciation of $47,125, for $28,625 cash c. Purchased equipment costing $113,375 by paying $64,000 cash and signing a long-term note payable for the balance d. Borrowed $5,700 cash by signing a short-term note payable e. Paid $58,625 cash to reduce the long-term notes payable f. Issued 4,200 shares of common stock for $20 cash per share g. Declared and paid cash dividends of $53,500 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 Net income Adjustments to reconcile net income to net cash provided by operations Depreciation expense Loss on disposal of equipment Accounts receivable increase Inventory increase Prepaid expense decrease Notes payable long-term increase Accounts payable increase Net cash provided by operating activities Cash flows from investing activities Cash received from sale of equipment Cash paid for equipment Net cash provided by investing activities Cash flows from financing activities Accounts receivable increase Net increase (decrease) in cash Cash balance at beginning of year Cash balance at end of year Additional Information on Year 2017 Transactions a. Net income was $108,175. b. Accounts receivable increased. c. Inventory increased. d. Prepaid expenses decreased. e. Accounts payable decreased f. Depreciation expense was $37,750 g. Sold equipment costing $97,875, with accumulated depreciation of $47,125, for $28,625 cash. This yielded a loss of $22,125 h. Purchased equipment costing $113,375 by paying $64,000 cash and (i.) by signing a long-term note payable for the balance. i. Borrowed $5,700 cash by signing a short-term note payable. j. Paid $58,625 cash to reduce the long-term notes payable. k. Issued 4,200 shares of common stock for $20 cash per share. I. Declared and paid cash dividends of $53,500. Required Prepare a complete statement of cash flows using a spreadsheet, report its operating activities using the indirect method. (Enter all amounts as positive values.) FORTEN COMPANY Spreadsheet for Statement of Cash Flows For Year Ended December 31, 2017 Analysis of Changes Debit December 31, 2016 Credit December 31, 2017 Balance sheet-debit Cash Accounts receivable Inventory Prepaid expenses Equipment 90,500 67,625 268,800 2,235 125,000 554,160 75,400 75,400 Balance sheet-credit Accumulated depreciation-Equipment Accounts payable Short-term notes payable Long-term notes payable Common stock, $5 par value Paid-in capital in excess of par value, common stock Retained earnings 54,500 140,175 9,400 65,750 167,250 117,085 554,160 Statement of cash flows Operating activities Investing activities Financing activities Non cash investing and financing activities Purchase of equipment financed by long-term note payable