Data for Klemmer Company are presented in P12-7B. Further analysis reveals the following.

1. Accounts payable pertains to merchandise creditors.

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

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

4. All sales and purchases are on account.

Instructions

(a) Prepare a statement of cash flows using the direct method.

(b) Compute these cash-based measures:

(1) Current cash debt coverage ratio.

(2) Cash debt coverage ratio.

(3) Free cash flow.