The comparative balance sheet of Melchor Educational Supply at December 31, 2025, reported the following:

Melchor Educational Supply’s transactions during 2025 included the following: 

Requirements 

1. Prepare the statement of cash flows of Melchor Educational Supply for the year ended December 31, 2025. Use the indirect method to report cash flows from operating activities. 

2. Evaluate Melchor Educational Supply’s cash flows for the year. Mention all three categories of cash flows and give the reasons for your evaluation. 

3. If Melchor Educational Supply plans similar activity for 2026, what is its expected free cash flow?  

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Current Assets: Cash Accounts Receivable Merchandise Inventory Current Liabilities: Accounts Payable Accrued Liabilities 2025 $ 88,200 15,300 62,600 28,600 10,600 2024 $ 22,500 22,600 59,400 27,100 11,200