Data for Rocastle Company are presented in P13-7B. 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 operating expenses.

4. All sales and purchases are on account.

Instructions

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

(b) Compute free cash flow.

Data From P13-7B 

Presented below are the financial statements of Rocastle Company.

Rocastle Company
Income Statement
For the Year Ended December 31, 2014

Sales revenue ..........................................$286,000
Cost of goods sold .....................................204,000
Gross profit ....................................................82,000
Operating expenses .......................................37,000
Income from operations .................................45,000
Interest expense ..................................................7,000
Income before income taxes ............................38,000
Income tax expense ..........................................10,000
Net income .......................................,,,,,,,,,,,,,,...$ 28,000

Additional data:
1. Depreciation expense was $6,000.
2. Dividends of $25,000 were declared and paid.
3. During the year, equipment was sold for $12,000 cash. This equipment cost $15,000
originally and had accumulated depreciation of $3,000 at the time of sale.
4. Additional equipment was purchased for $7,000 cash.
Instructions
(a) Prepare a statement of cash fl ows using the indirect method.
(b) Compute free cash fl ow.

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Rocastle Company Comparative Balance Sheets December 31 Assets 2014 2013 $ 18,000 25,000 45,000 $ 33,000 14,000 25,000 Cash Accounts receivable Inventory Equipment Less: Accumulated depreciation– equipment $ 70,000 $ 78,000 (27,000) (24,000) 43,000 54,000 Total $131,000 $126,000 Liabilities and Stockholders' Equity Accounts payable Income taxes payable Bonds payable $ 31,000 24,000 20,000 25,000 $ 43,000 20,000 10,000 25,000 28,000 Common stock Retained earnings 31,000 Total $131,000 $126,000