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 Income Statement For year Ended 31 December, 2017
|
Sales | | \(582,500 |
Cost of goods sold | | (285,000) |
Gross profit | | 297,500 |
Operating expenses | | |
Depreciation expenses | \)20,750 | |
Other expenses | 132,400 | 153,150 |
Other gain (losses) | | |
Loss on sale of equipment | | (5,125) |
Income before tax | | 139,225 |
Income tax expenses | | 24,250 |
Net income | | \(114,975 |
FORTEN COMPANY Income Statement For year Ended 31 December, 2017
|
| 2017 | 2016 |
Assets: | | |
Cash | \)49,800 | \(73,500 |
Accounts receivable | 65,810 | 50,625 |
Inventory | 275,656 | 251,800 |
Prepaid expenses | 1,250 | 1,875 |
Total current assets | 392,516 | 377,800 |
Equipment | 157,500 | 108,000 |
Accumulated depreciation – equipment | (36,625) | (46,000) |
Total assets | \)513,391 | \(439,800 |
Liability and equity | | |
Account payable | \)53,141 | \(114,675 |
Short-term note payable | 10,000 | 6,000 |
Total current liabilities | 63,141 | 120,675 |
Long term note payable | 65,000 | 48,750 |
Total liabilities | 128,141 | 169,425 |
Equity | | |
Common stock, \)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 |
Additional Information on Year 2017 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.
