Presented below are the financial statements of Gaudette Company.

Additional information:

1. Dividends of $33,000 were declared and paid. Gaudette reports under ASPE.

2. During the year, equipment was sold for $10,000 cash. This equipment cost $13,000 originally and had a carrying value of $10,000 at the time of sale.

3. All depreciation expense, $6,000, is in the selling expense category.

4. All sales and purchases are on account.

5. Additional equipment was purchased for $5,000 cash.

Instructions

a. Prepare a statement of cash fl ows using the indirect method.

b. Calculate free cash flow.

Taking It Further

Gaudette Company had a positive cash balance at the beginning and end of 2021. Given that, is it possible that the company could have had a negative cash balance at one or more points during the year? Explain.

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GAUDETTE COMPANY Balance Sheet December 31 Assets 2021 2020 Cash S 28,000 $ 33,000 Accounts receivable 23,000 14,000 Inventory Equipment Accumulated depreciation-equipment 41,000 25,000 70,000 78,000 (27,000) (24,000) Total $135,000 $126,000 Liabilities and Shareholders' Equity $ 31,000 $ 43,000 Accounts payable Income taxes payable Notes payable 26,000 20,000 20,000 10,000 Common shares 25,000 25,000 Retained earnings 33,000 28,000 Total $135,000 $126,000 GAUDETTE COMPANY Income Statement For the Year Ended December 31, 2021 Sales $286,000 Cost of goods sold 194,000 Gross profit Selling expenses Administrative expenses 92,000 $28,000 9,000 37,000 Profit from operations 55,000 Interest expense 7,000 Profit before income taxes 48,000 Income tax expense 10,000 Profit $ 38,000