Problem 12 – 3A:
Forten Company's current year income statement, comparative balance sheets, and additional information follow.
For the year, all sales are credit sales, all credits to Accounts Receivable reflect cash receipts from customers,
All purchases of inventory are on credit, all debits to Accounts Payable reflect cash payments for inventory, and Other Expenses are paid in advance and are initially debited to prepaid expenses.
Forten Company
Income Statement
For the Year Ended December 31, 2020
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 $139,225
Income taxes expense $24,250
Net income $114,975
Forten Company
Balance Sheet
As of December 31, 2019 and 2020
2020 2019
Assets
Cash $49,800 $73,500
Accounts receivable $65,810 $50,625
Inventory $275,656 $251,800
Prepaid expenses $1,250 $1,875
Total current assets $392,516 $377,800
Equipment $157,500 $108,000
Accumulated 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
Total current liabilities $63,141 $120,675
Long-term notes payable $65,000 $48,750
Total liabilities $128,141 $169,425
Equity
Common stock, $5 par value $162,750 $150,250
Paid-in-capital in excess of par, common stock $37,500 -
Retained earnings $185,000 $120,125
Total Equity $385,250 $270,375
Total liabilities and equity $513,391 $439,800
Additional information:
a. Loss on the cash sale of equipment $5,125
b. Sold equipment costing $46,875
Accumulated depreciation on equipment sold $30,125
Cash received for sale of equipment $11,625
c. Purchase price of equipment $96,375
Cash paid for equipment $30,000
Long-term note payable for equipment purchase $66,375
d. Borrowed cash by signing a short-term note payable $4,000
e. Cash paid to reduce the long-term notes payable $50,125
f. Issued $2500 shares of common stock for $20 per share
g. Declared and paid cash dividends $50,100