Indirect: Statement of cash flows Forten Company, a merchandiser, recently completed its calendar-year 2017 operation 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. 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 $582,500 285.000 297,500 $ 20,750 132.400153,150 (5.125) 139,225 24,250 $114,975 2017 2016 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 $49,800 73,500 65,810 50,625 275,656 251,800 1250 1875 392,516 377,800 157,500 108,000 (36625) (46,000) $513,391 $439,800 $53,141 $114,675 10,000 6,000 63,141 120,675 -65.000-48.750 128,141 169,425 162,750 150,250 0 Common stock, $5 par value Paid-in capital in excess of par, common stock Retained earnings Total liabilities and equity 37,500 185,000 120.125 $513,391 $439,800 Additional Information on Year 2017 Transactions a. The loss on the cash sale of equipment was $5,125 (details in b). 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 $50,125 cash to reduce the long-term notes payable f. Issued 2,500 shares of common stock for $20 cash per share. g. Declared and paid cash dividends of $50,100. Required 1. Prepare a complete statement of cash flows; report its operating activities using method Disclose any noncash investing and financing activities in a note. Analyze and discuss the statement of cash flows prepared in part 1, giving special attention to the wisdom of the cash dividend payment. 2
