Share
Explore BrainMass

Forten Company

Please see pdf file.

Forten Company, a merchandiser, recently completed its calendar-year 2008 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. Forten's balance sheets and income statement follow:

FORTEN COMPANY
Comparative Balance Sheets
December 31, 2008 and 2007
2008 2007
Assets
Cash $ 49,800 $ 73,500
Accounts receivable 65,810 50,625
Merchandise inventory 275,656 251,800
Prepaid expenses 1,250 1,875
Equipment 157,500 108,000
Accum. depreciation?Equipment (36,625) (46,000)
Total assets $513,391 $439,800
Liabilities and Equity
Accounts payable $ 53,141 $114,675
Short-term notes payable 10,000 6,000
Long-term notes payable 65,000 48,750
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

FORTEN COMPANY
Income Statement
For Year Ended December 31, 2008
Sales $582,500
Cost of goods sold 285,000
Gross profit 297,500
Operating expenses
Depreciation expense $ 20,750
Other expenses 132,400 153,150
Other gains (losses)
Loss on sale of equipment 5,125
Income before taxes $139,125
Income taxes expense 24,250
Net income $114,975

Additional Information on Year 2008 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:
Prepare a complete statement of cash flows; report its operating activities using the indirect method.

Attachments

Solution Preview

Forten Company, a merchandiser, recently completed its calendar-year 2008 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. Forten's balance sheets and income statement follow:

FORTEN COMPANY
Comparative Balance Sheets
December 31, 2008 and 2007
Increase Activity
2008 2007 (Decrease)
Assets
Cash $  49,800  $   73,500  -23,700
Accounts receivable 65,810  50,625  15,185 Operating
Merchandise Inventory 275,656  251,800  23,856 Operating
Prepaid expenses 1,250  1,875  -625 Operating
Equipment 157,500  108,000  49,500 Investing
Accum. Depreciation-Equipment  (36,625)  (46,000) 9,375 Operating
Total assets $513,391  $439,800 

Liabilities and Equity
Accounts payable $  53,141 $ 114,675 -61,534 Operating
Short-term notes payable 10,000  6,000  4,000 Financing
Long-term notes payable 65,000  48,750  16,250 Financing
Common stock, $5 par ...

Solution Summary

This solution is comprised of a detailed explanation to prepare a complete statement of cash flows; report its operating activities using the indirect method.

$2.19