Problem 16-3A ndirect: Statement of cash flows 1 P2 P3 Forten Company's current-year income statement, comparative balance sheets, and additional information fol- low. 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 Income Statement For Current Year Ended December 31 $582,500 285,000 297,500 Sales. Cost of goods sold Gross profit. Operating expenses Depreciation expense Other expenses Other gains (losses) Loss on sale of equipment Income before taxes. Income taxes expense Net income $ 20.750 132.400 153.150 FORTEN COMPANY Comparative Balance Sheets December 31 Current Year Prior Year Assets Cash $ 49,800 Accounts receivable 65,810 Inventory 275.656 Prepaid expenses 1,250 Total current assets 392,516 Equipment 157,500 Accum depreciation-Equipment (36,625) Total assets $513,391 Liabilities and Equity Accounts payable $ 53,141 Short-term notes payable. 10,000 Total current liabilities 63,141 Long-term notes payable 65.000 Total liabilities 128,141 Equity Common stock, 55 par value 162,750 37,500 Pald in capital in excess of par, common stock... 185,000 Retained earings $513.391 Total liabilities and equity** $ 73,500 50,625 251.800 1.875 377.800 108,000 (46,000) $439.800 (5.125 139.225 24.250 $114,975 $114,675 6,000 120,675 48,250 169,425 Additional Information on Current-Year Transactions a. The loss on the cash sale of equipment was $5,125 (details in ) b. Sold equipment costing $46,875, with accumulated depreciation of $30,125, for $11,625 cash, c. Purchased equipment costing $96,375 by paying $30,000 cash and signing a long term note payable for the balance. d. Borrowed $4,000 cash by signing a short-term note payable. e. Paid 550,125 cash to reduce the long-term notes payable. f. Issued 2,500 shares of common stock for $20 cash per share. 9. Declared and paid cash dividends of $50,100, 150.250 0 120125 5439.00 Required 1. Prepare a complete statement of cash flows using the indirect method for the current year. Disclose any noncash investing and financing activities in a note. Analysis Component 2. Analyze and discuss the statement of cash flows prepared in part 1, giving special attention to the wisdom of the cash dividend payment
