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 $ 54,400 70,310 280,156 1,280 406,146 154,500 (38,125) $522,521 $ 76,500 53,625 254,800 2,005 386,930 111,000 (47,500) $450, 430 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 $ 56,141 10,900 67,041 63,500 130,541 $119,175 6,600 125,775 51,750 177,525 168,750 40,500 182,730 $522,521 153, 250 0 119,655 $ 450, 430 $597,500 288,000 309,500 FORTEN COMPANY Income Statement For Year Ended December 31, 2017 Sales Cost of goods sold Gross profit Operating expenses Depreciation expense $ 23,750 Other expenses 135,400 Other gains (losses) Loss on sale of equipment Income before taxes Income taxes expense Net income 159, 150 (8,125) 142,225 28,450 $113,775 a. The loss on the cash sale of equipment was $8,125 (details in b). b. Sold equipment costing $55,875, with accumulated depreciation of $33,125, for $14,625 cash. c. Purchased equipment costing $99,375 by paying $36,000 cash and signing a long-term note payable for the balance. d. Borrowed $4,300 cash by signing a short-term note payable. e. Paid $51,625 cash to reduce the long-term notes payable. f. Issued 2,800 shares of common stock for $20 cash per share. g. Declared and paid cash dividends of $50,700. 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 Accounts receivable increase Inventory increase Prepaid expense decrease Accounts payable decrease Loss on disposal of equipment $ 0 Net cash provided by operating activities Cash flows from investing activities Cash paid for equipment Cash received from sale of equipment 0 $ 0 Net cash provided by operating activities Cash flows from investing activities Cash paid for equipment Cash received from sale of equipment 0 Cash flows from financing activities: Cash borrowed on short-term note Cash paid on long-term note Cash received from issuing stock Cash paid for dividends 0 $ 0 Net increase (decrease) in cash Cash balance at beginning of year Cash balance at end of year $ 0
