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, and 

(4) All debits to Accounts Payable reflect cash payments for inventory.

Required

1. Prepare a complete statement of cash flows using the indirect method for the current year. 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.

Transcribed Image Text:

FORTEN COMPANY FORTEN COMPANY Income Statement Comparative Balance Sheets For Current Year Ended December 31 At December 31 Current Year Prior Year Sales $582,500 Assets Cost of goods sold 285,000 Cash. $ 49,800 $ 73,500 Gross profit.. 297,500 Accounts receivable 65,810 50,625 $132,400 Inventory 275,656 251,800 Operating expenses (excluding depreciation) Depreciation expense Other gains (losses) Loss on sale of equipment. .. Prepaid expenses. Total current assets. 20,750 153,150 1,250 1,875 392,516 377,800 (5,125) 139,225 Equipment . 157,500 108,000 Accum. depreciation-Equipment (46,000) $439,800 Income before taxes. (36,625) $513,391 Income taxes expense. 24,250 Total assets Net income $114,975 Liabilities and Equity Accounts payable $ 53,141 $114,675 Long-term notes payable . 75,000 54,750 Additional Information on Current-Year Transactions Total liabilities 128,141 169,425 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. Equity Common stock, $5 par value . 162,750 150,250 c. Purchased equipment costing $96,375 by paying $30,000 cash and signing a long-term notes payable for the balance. d. Paid $46,125 cash to reduce the long-term notes payable. e. Issued 2,500 shares of common stock for $20 cash per share. f. Declared and paid cash dividends of $50,100. Paid-in capital in excess of par, common stock.. Retained earnings.. Total liabilities and equity.. 37,500 120,125 $439,800 185,000 $513,391