Cash flows-operating activities using the indirect method

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Reference no: EM13789469

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, and (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 $ 68,039 $ 71,500

Accounts receivable 78,425 60,625

Merchandise inventory 260,656 231,800

Prepaid expenses 1,580 2,075

Equipment 161,475 119,000

Accum. Depreciation Equipment (52,750) (59,000)

Total assets $ 517,425 $ 426,000

Liabilities and Equity

Accounts payable $ 58,175 $ 111,050

Short-term notes payable 9,800 5,900

Long-term notes payable 24,725 42,500

Common stock, $5 par value 166,750 149,750

Paid-in capital in excess of par, common stock 51,000 0

Retained earnings 206,975 116,800

Total liabilities and equity $ 517,425 $ 426,000

FORTEN COMPANY

Income Statement

For Year Ended December 31, 2013

Sales $ 632,500

Cost of goods sold 305,000

Gross profit 327,500

Operating expenses

Depreciation expense $ 19,900

Other expenses 129,600 149,500

Other gains (losses)

Loss on sale of equipment (4,475)

Income before taxes 173,525

Income taxes expense 30,750

Net income $ 142,775

Additional Information on Year 2013 Transactions

a. The loss on the cash sale of equipment was $4,475 (details in b).

b. Sold equipment costing $45,675, with accumulated depreciation of $26,150, for $15,050 cash.

c. Purchased equipment costing $88,150 by paying $62,000 cash and signing a long-term note payable for the balance.

d. Borrowed $3,900 cash by signing a short-term note payable.

e. Paid $43,925 cash to reduce the long-term notes payable.

f. Issued 3,400 shares of common stock for $20 cash per share.

g. Declared and paid cash dividends of $52,600.

Required:

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

Reference no: EM13789469

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