Forten Company's current year income statement, comparative balance sheets, and additional information follow.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.FORTEN COMPANYComparative Balance SheetsDecember 31Current YearPrlor YearAssetsCash$ 73,90089,930$ 89,50066,625Accounts receivableInventoryPrepaid expenses299,656267,8001,3702,215Total current assets464,856426,140EquipmentAccum. depreciation-Equipment124,000(54,000)$ 496,140141,500(44,625)561,731Total assets24Liabilities and EquityAccounts payableShort-term notes payable2469,141$ 138,67514,8009,200Total current liabilities83,94157,000147,87564,750Long-term notes payableTotal liabilities140,941212,625EquityCommon stock, $5 par valuePaid-in capital in excess of par, common stockRetained earnings186,750166,25061,500172,540$ 561,731117,265Total liabilities and equity$ 496,140FORTEN COMPANYIncome StatementFor Current Year Ended December 31Sales$ 662,500Cost of goods soldGross profit301.000361,500Operating expensesDepreciation expenseOther expenses$ 36,750148,400185,150Other gains (losses)Loss on sale of equipment(21,125)Income before taxes155,225Income taxes expense46,650Net income$ 108,575Additional Information on Current Year Transactionsa. The loss on the cash sale of equipment was $21,125 (details in b).b. Sold equipment costing $94,875, with accumulated depreciation of $46,125, for $27,625 cash.C Purchased equipment costing $112,375 by paying $62,000 cash and signing a long-term note payable for thebalance.d. Borrowed $5,600 cash by signing a short-term note payable.e. Paid $58,125 cash to reduce the long-term notes payable.f. Issued 4,100 shares of common stock for $20 cash per share.g. Declared and paid cash dividends of $53,30.Required:1. Prepare a complete statement of cash flows using the indirect method for the current year. (Amounts to bededucted should be indicated with a minus sign.)

Name: Forten Company's current year income statement, comparative balance s
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Description: Forten Company's current year income statement, comparative balance sheets, and additional information follow.For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers,(3) all purchases

Solution: Cash Flow Statement: A cash flow statement is one of the financial statements of a business organization and the primary purpose of cash flows is to report all major cash inflows (receipts) and cash outflows ( payments ) including all changes in current assets and current liabilities after adjusting non cash revenues and expenses to the net income during an accounting period. It explains the difference between the beginning and ending cash and cash equivalent balances of a company. When there is an increase in current asset/Assets and decrease in current liability/liabilities, the result is cash paid vice versa, If there When there is a decrease in current asset/Assets and increase in current liability/debts and liabilities, the result is cash received.Analysis and Calculation: Forten Company Statement of Cash Flow For the Year Ended December 31 Cash flows from Operating Activities: $ $ Net Income (Given) 108,575 Adjustments to reconcile net income to net cash provided by operations: Depreciation Expenses (given) 36,750 Accounts Receivable increase ($66,625 - $89,930) (23,305) Inventory increase ( $267,800 - $299,656) (31,856) Prepaid Expense decrease ($2,215 - $1,370) 845 Accounts Payable decrease ($69,141-$138,675) (69,534) Loss on disposable of equipment 21,125 Net cash provided by operating operating activities (a) $42,600 Cash flows from investing activities: Cash paid for equipment (62,000) Cash received from sale of equipment 27,625 Net cash used in investing activities (b) (34,375) Cash flows from financing activities: Cash borrowed on short term note 5,600 Cash paid on Long term note (58,125) Cash received from issuing stock (4,100 shares * $20) 82,000 Cash paid for dividends (53,300) Net cash Used in financing activities (c) (23,825) Net increase (decrease) in cash (a + b + c) (15,600) Cash Balance at beginning of year (Given) 89,500 Cash balance at the end of year 73,900

Answered: 1. Prepare a complete statement of cash…

Business

Accounting

1. Prepare a complete statement of cash flows using the indirect method for the current year. (Amounts to be deducted should be indicated with a minus sign.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Reporting Cash Flows

Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.

Balance Sheet

A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.

Financial Statements

Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.

Owner's Capital

Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.

Topic Video

Question

Forten Company's current year income statement, comparative balance sheets, and additional information follow.
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.
FORTEN COMPANY
Comparative Balance Sheets
December 31
Current Year
Prlor Year
Assets
Cash
$ 73,900
89,930
$ 89,500
66,625
Accounts receivable
Inventory
Prepaid expenses
299,656
267,800
1,370
2,215
Total current assets
464,856
426,140
Equipment
Accum. depreciation-Equipment
124,000
(54,000)
$ 496,140
141,500
(44,625)
561,731
Total assets
24
Liabilities and Equity
Accounts payable
Short-term notes payable
24
69,141
$ 138,675
14,800
9,200
Total current liabilities
83,941
57,000
147,875
64,750
Long-term notes payable
Total liabilities
140,941
212,625
Equity
Common stock, $5 par value
Paid-in capital in excess of par, common stock
Retained earnings
186,750
166,250
61,500
172,540
$ 561,731
117,265
Total liabilities and equity
$ 496,140
FORTEN COMPANY
Income Statement
For Current Year Ended December 31
Sales
$ 662,500
Cost of goods sold
Gross profit
301.000
361,500
Operating expenses
Depreciation expense
Other expenses
$ 36,750
148,400
185,150
Other gains (losses)
Loss on sale of equipment
(21,125)
Income before taxes
155,225
Income taxes expense
46,650
Net income
$ 108,575
Additional Information on Current Year Transactions
a. The loss on the cash sale of equipment was $21,125 (details in b).
b. Sold equipment costing $94,875, with accumulated depreciation of $46,125, for $27,625 cash.
C Purchased equipment costing $112,375 by paying $62,000 cash and signing a long-term note payable for the
balance.
d. Borrowed $5,600 cash by signing a short-term note payable.
e. Paid $58,125 cash to reduce the long-term notes payable.
f. Issued 4,100 shares of common stock for $20 cash per share.
g. Declared and paid cash dividends of $53,30.
Required:
1. Prepare a complete statement of cash flows using the indirect method for the current year. (Amounts to be
deducted should be indicated with a minus sign.)

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