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.

Answer and Explanation:

The preparation of the cash flow statement is presented below:

Forten Company

Statement of Cash Flows

For Current Year Ended December 31

Cash flows from operating activities  

Net Income $110,575  

Adjustments made

Depreciation expense $31,750  

Less: Increase in Accounts receivable -$20,755  

Less: Increase in Inventory -$29,356  

Add: Decrease in Prepaid expense  $795  

Less: Decrease in Accounts payable -$67,034  

Add: Loss on disposal of equipment $16,125  

Net cash provided by operating activities $42,100

Cash flows from investing activities  

Less: Cash paid for equipment-$52,000  

Add: Cash received from sale of equipment $22,625  

Net cash used in investing activities -$29,375

Cash flows from financing activities:  

Cash borrowed on short-term note $5,100  

Less: Cash paid on long-term note -$55,625  

Add: Cash received from issuing stock $72,000  

Less: Cash paid for dividends   -$52,300  

Net cash used in financing activities -$30,825

Net increase (decrease) in cash  -$18,100

Add: Cash balance at beginning of year $84,500

Cash balance at end of year   $66,400

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