Question: Forten Company, a merchandiser, recently completed
Forten Company, a merchandiser, recently completed its calendar-year 2015 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.
Additional Information on Year 2015 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 the indirect method. 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.
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FORTEN COMPANY Income Statement For Year Ended December 31, 2015 Sales ..... $582,500 Cost of goods sold Gross profit .. Operating expenses Depreciation expense Other expenses.. Other gains (losses) 285,000 297,500 $ 20,750 132,400 153,150 Loss on sale of equipment (5,125) Income before taxes 139,225 Income taxes expense 24,250 Net income $114,975 FORTEN COMPANY Comparative Balance Sheets December 31, 2015 and 2014 2015 2014 Assets Cash $ 49,800 $ 73,500 Accounts receivable 65,810 50,625 Inventory .. Prepaid expenses Total current assets. 275,656 251,800 1,875 377,800 1,250 392,516 Equipment . 157,500 108,000 Accum. depreciation Equipment (46,000) $439,800 (36,625) Total assets $513,391 Liabilities and Equity Accounts payable $ 53,141 $114,675 Short-term notes payable Total current liabilities.. Long-term notes payable 10,000 6,000 63,141 120,675 65,000 48,750 Total liabilities 128,141 169,425 Equity Common stock, $5 par value Paid-in capital in excess of par, common stock Retained eamings 162,750 150,250 37,500 185,000 120,125 Total liabilities and equity $513,391 $439,800
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