ACC – Forten Company, a merchandiser

Forten Company, a merchandiser, recently completed its calendar-year 2013 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 balance sheets and income statement follow.

FORTEN COMPANY
Comparative Balance Sheets
December 31, 2013 and 2012
2013 2012
Assets
Cash $ 49,200 $ 73,500
Accounts receivable 65,880 56,000
Merchandise inventory 277,000 251,500
Prepaid expenses 1,000 1,800
Equipment 158,000 107,000
Accum. depreciation—Equipment (36,750) (46,000)

Total assets $ 514,330 $ 443,800

Liabilities and Equity
Accounts payable $ 51,355 $ 111,000
Short-term notes payable 9,000 7,000
Long-term notes payable 62,500 48,250
Common stock, $5 par value 162,000 151,000
Paid-in capital in excess of par, common stock 33,000 0
Retained earnings 196,475 126,550

Total liabilities and equity $ 514,330 $ 443,800

FORTEN COMPANY
Income Statement
For Year Ended December 31, 2013
Sales $ 585,000
Cost of goods sold 282,000

Gross profit 303,000
Operating expenses
Depreciation expense $ 20,000
Other expenses 133,200 153,200

Other gains (losses)
Loss on sale of equipment (5,625)

Income before taxes 144,175
Income taxes expense 24,250

Net income $ 119,925

Additional Information on Year 2013 Transactions
a.The loss on the cash sale of equipment was $5,625 (details in b).
b.Sold equipment costing $46,500, with accumulated depreciation of $29,250, for $11,625 cash.
c.Purchased equipment costing $97,500 by paying $30,000 cash and signing a long-term note payable for the balance.
d.Borrowed $2,000 cash by signing a short-term note payable.
e.Paid $53,250 cash to reduce the long-term notes payable.
f.Issued 2,200 shares of common stock for $20 cash per share.
g. Declared and paid cash dividends of $50,000.

Required:

Prepare a complete statement of cash flows; report its operating activities according to the direct method