Use Direct Method

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 Assets Cash Accounts receivable Inventory Prepaid expenses Total current assets Equipment Accum. depreciation-Equipment Total assets $55,900 77,500 54,625 255, 800 1,975 389,900 112,000 71,810 281,656 1,250 410,616 153,500 (38,625) (48,000) $525,491 453,900 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 11,200 68,341 63,000 131, 341 57,141 $120,675 6,800 127,47!5 52,750 180,225 170,750 41,500 181,900 154,250 119,42!5 $525,491 453,900 FORTEN COMPANY Income Statement For Year Ended December 31, 2017 Sales Cost of goods sold Gross profit Operating expenses $602,500 289,000 313,500 Depreciation expense $24,750 136,400 161,150 Other expenses Other gains (losses) Loss on sale of equipment Income before taxes Income taxes expense Net income (9,125) 143,22!5 29,850 $113,375 Additional Information on Year 2017 Transactions a. The loss on the cash sale of equipment was $9,125 (details in b) b. Sold equipment costing $58,875, with accumulated depreciation of $34,125, for $15,625 cash c. Purchased equipment costing $100,375 by paying $38,000 cash and signing a long-term note pavable for the balance d. Borrowed $4,400 cash by signing a short-term note payable e. Paid $52,125 cash to reduce the long-term notes payable f. Issued 2,900 shares of common stock for $20 cash per share g. Declared and paid cash dividends of $50,900