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, and (4) all debits to Accounts Payable reflect cash payments for inventory. FORTEN COMPANY Income Statement For Current Year Ended December 31 Sales $ 667,500 Cost of goods sold 302,000 Gross profit Operating expenses (excluding depreciation) $ 149,400 Depreciation expense 365,500 37,750 187,150 Other gains (losses) Loss on sale of equipment Income before taxes (22,125) 156,225 Income taxes expense Net income Assets Cash 48,050 $ 108,175 FORTEN COMPANY Comparative Balance Sheets December 31 Current Year Prior Year $ 75,400 91,440 $ 90,500 67,625 268,800 Accounts receivable Inventory Prepaid expenses Total current assets Equipment Accumulated depreciation-Equipment Total assets Liabilities and Equity Accounts payable 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 301,156 1,380 2,235 469,376 429,160 125,000 140,500 (45,125) $ 564,751 $ 70,141 71,600 141,741 188,250 63,000 171,760 $ 564,751 (54,500) $ 499,660 $ 140,175 75,150 215,325 167,250 0 117,085 $ 499,660 Balance sheet-debit Cash Accounts receivable Inventory Prepaid expenses Equipment Balance sheet-credit Accumulated depreciation-Equipment Accounts payable FORTEN COMPANY Spreadsheet for Statement of Cash Flows For Current Year Ended December 31 December 31, Prior Year Long-term notes payable Common stock, $5 par value. Paid-in capital in excess of par value, common stock Retained earnings Statement of cash flows Operating activities $ 90,500 67,625 268,800 2,235 125,000 Analysis of Changes December 31, Debit Credit Current Year $ 75,400 $ 554,160 $ 75,400 $ 54,500 140,175 75,150 167,250 0 117,085 $ 554,160 $ 0 Common stock, $5 par value Paid-in capital in excess of par value, common stock Retained earnings Statement of cash flows Operating activities Investing activities Financing activities Net income Non cash investing and financing activities Purchase of equipment financed by long-term notes payable 167,250 0 117,085 $ 554,160 $ 0 $ 0 $ 0 FORTEN COMPANY Statement of Cash Flows For Current Year Ended December 31 Cash flows from operating activities Cash received from customers Cash paid for inventory Cash paid for operating expenses Cash paid for income taxes Cash flows from investing activities 643,685 (404,390) (148,545) (48,050) $ 42,700 Cash received from sale of equipment Cash paid for equipment 28,625 (64,000) (35,375) Cash flows from financing activities Cash paid on long-term notes (52,925) Cash received from issuing stock 84,000 Cash paid for dividends (53,500) Net increase (decrease) in cash Cash balance at December 31, prior year Cash balance at December 31, current year (22,425) $ (15,100) 90,500 $ 75,400 Cash flows from operating activities Net income FORTEN COMPANY Statement of Cash Flows For Current Year Ended December 31 $ 108,175 Adjustments to reconcile net income to net cash provided by operations: Income statement items not affecting cash Depreciation expense Loss on disposal of equipment Changes in current assets and current liabilities Increase in accounts receivable Increase in inventory Decrease in prepaid expenses 37,750 22,125 Decrease in accounts payable Net cash provided by operating activities (23,815) (32,356) 855 (70,034) $ 42,700 Cash flows from investing activities Cash paid for equipment (64,000) Cash received from sale of equipment 28,625 Net cash used in investing activities (35,375) Changes in current assets and current liabilities Increase in accounts receivable Increase in inventory Decrease in prepaid expenses (23,815) (32,356) Decrease in accounts payable Net cash provided by operating activities Cash flows from investing activities Cash paid for equipment Cash received from sale of equipment Net cash used in investing activities Cash flows from financing activities: Cash paid on long-term notes Cash received from issuing stock 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 855 (70,034) $ 42,700 (64,000) 28,625 (35,375) (52,925) 84,000 (53,500) (22,425) $ (15,100) 90,500 $ 75,400 Other gains (losses) Loss on sale of equipment Income before taxes Income taxes expense Net income (22,125) 156,225 48,050 $108,175 Assets Cash Accounts receivable Prepaid expenses Inventory Total current assets. Equipment FORTEN COMPANY Comparative Balance Sheets December 31 Current Year Prior Year $ 75,400 91,440 $ 90,500 67,625 268,800 2,235 301,156 1,380 469,376 429,160 140,500 125,000 (54,500) Accumulated depreciation-Equipment Total assets Liabilities and Equity Accounts payable 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 Additional Information on Current Year Transactions (45,125) $ 564,751 $ 70,141 71,600 141,741 $ 499,660 $ 140,175 75,150 215,325 188,250 167,250 63,000 171,760 117,085 $ 564,751 $ 499,660 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 notes payable for the balance. d. Paid $52,925 cash to reduce the long-term notes payable. e. Issued 4,200 shares of common stock for $20 cash per share. f. Declared and paid cash dividends of $53,500