A Data for Warner Company are presented in P12-7A. Further analysis reveals the following.

In P12-7A,

1. Accounts payable pertain to merchandise suppliers.

2. All operating expenses except for depreciation were paid in cash.

3. All depreciation expense is in the selling expense category.

4. All sales and purchases are on account.

A Presented below are the financial statements of Warner Company.

Additional data:
1. Depreciation expense was $17,500.
2. Dividends declared and paid were $20,000.
3. During the year equipment was sold for $8,500 cash. This equipment cost $18,000 originally and had accumulated depreciation of $9,500 at the time of sale.
Instructions
(a) Prepare a statement of cash flows for Warner Company using the direct method.
(b) Compute free cash flow.

Transcribed Image Text:

WARNER COMPANY Comparative Balance Sheets December 31 Assets Cash Accounts receivable 2017 2016 $ 20,000 14,000 20,000 78,000 (24,000) $108,000 S35,000 20,000 28,000 60,000 (32,000) Property, plant, and equipment Total $111,000 Liabilities and Stockholders' Equit Accounts payable Income taxes payable Bonds payable Common stock Retained earnings Total S 19,000 7,000 17,000 18,000 50,000 S111,000 S 15,000 8,000 33,000 14,000 38,000 $108,000 WARNER COMPANY Income Statement For the Year Ended December 31, 2017 Sales revenue Cost of goods sold Gross profit Selling expenses $242,000 175,000 67,000 $18,000 6,000 Income from operations Interest expense Income before income taxes Income tax expense Net income 24,000 43,000 3,000 40,000 8,000 32,000