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: Problem 16-3AB Direct: Statement of cash flows LO P1, P3, P5

Forten Company, a merchandiser, recently completed its calendar-year 2013 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
(5) Other Expenses are paid in advance and are initially debited to Prepaid Expenses.

The company’s balance sheets and income statement follow.

FORTEN COMPANY
Comparative Balance Sheets
December 31, 2013 and 2012
2013 2012
Assets
Cash $ 49,800 $ 74,000
Accounts receivable 65,870 58,000
Merchandise inventory 277,500 252,500
Prepaid expenses 1,000 1,800
Equipment 158,500 107,500
Accum. depreciation—Equipment (30,875) (40,000)

Total assets $ 521,795 $ 453,800


Liabilities and Equity
Accounts payable $ 56,920 $ 114,000
Short-term notes payable 9,000 6,000
Long-term notes payable 65,000 48,000
Common stock, $5 par value 162,750 150,750
Paid-in capital in excess of par, common stock 36,000 0
Retained earnings 192,125 135,050

Total liabilities and equity $ 521,795 $ 453,800

FORTEN COMPANY
Income Statement
For Year Ended December 31, 2013

Sales $ 583,500
Cost of goods sold 284,000
Gross profit 299,500

Operating expenses
Depreciation expense $ 20,000
Other expenses 133,600 153,600

Other gains (losses)
Loss on sale of equipment (5,875)

Income before taxes 140,025
Income taxes expense 24,250

Net income $ 115,775


Additional Information on Year 2013 Transactions
a. The loss on the cash sale of equipment was $5,875 (details in b).

b. Sold equipment costing $46,500, with accumulated depreciation of $29,125, for $11,500 cash.

c. Purchased equipment costing $97,500 by paying $30,000 cash and signing a long-term note payable for the balance.

d. Borrowed $3,000 cash by signing a short-term note payable.

e. Paid $50,500 cash to reduce the long-term notes payable.

f. Issued 2,400 shares of common stock for $20 cash per share.

g. Declared and paid cash dividends of $58,700.


Required:



Prepare a complete statement of cash flows; report its operating activities according to the direct method. (Amounts to be deducted should be indicated with a minus sign.)
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