Problem 16-3A Indirect: Statement of cash flows A1 P2 P3 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 FORTEN COMPANY Comparative Balance Sheets For Current Year Ended December 31 At December 31 Current Year Prior Year Sales. $582,500 Assets Cost of goods sold 285,000 Gross profit.. 297,500 Operating expenses (excluding depreciation). $132,400 Cash....... Accounts receivable Inventory. $ 49,800 65,810 275,656 $ 73,500 50,625 251,800 Depreciation expense 20,750 153,150 Prepaid expenses 1,250 1,875 Other gains (losses) Total current assets. 392,516 377,800 Loss on sale of equipment.. (5,125) Equipment... 157,500 108,000 Income before taxes. 139,225 Accum. depreciation-Equipment (36,625) (46,000) Income taxes expense Net income 24,250 $114,975 Total assets $513,391 $439,800 Liabilities and Equity Accounts payable... $ 53,141 $114,675 Additional Information on Current-Year 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 notes payable for the balance. d. Paid $46,125 cash to reduce the long-term notes payable. e. Issued 2,500 shares of common stock for $20 cash per share. f. Declared and paid cash dividends of $50,100. Check Cash from operating activities, $40,900 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. Long-term notes payable 75,000 54,750 Total liabilities 128,141 169,425 Equity Common stock, $5 par value 162,750 150,250 Paid-in capital in excess of par, common stock... 37,500 0 Retained earnings... 185,000 120,125 Total liabilities and equity. $513,391 $439,800