E5-18 (L05,6) (Preparation of a Statement of Cash Flows, Analysis) The comparative balance sheets of Madrasah Corporation at the beginning and end of the year 2017 appear below.

Net income of $44,000 was reported, and dividends of $33,000 were paid in 2017. New equipment was purchased and none was sold.

Instructions

(a) Prepare a statement of cash flows for the year 2017.

(b) Compute the current ratio (current assets ÷ current liabilities) as of January 1, 2017, and December 31, 2017, and compute free cash flow for the year 2017.

(c) In light of the analysis in (b), comment on Madrasah’s liquidity and financial flexibility.

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Assets Cash MADRASAH CORPORATION BALANCE SHEETS Accounts receivable Equipment Less: Accumulated depreciation equipment Total Liabilities and Stockholders' Equity Accounts payable Common stock Retained earnings Total Dec. 31, 2017 $ 20,000 106,000 88,000 39,000 22,000 Jan. 1, 2017 $13,000 Inc./Dec. $ 7,000 Inc. 18,000 Inc. 17,000 Inc. 17,000 11,000 6,000 Inc. $148,000 $112,000 $ 20,000 100,000 $ 15,000 5,000 Inc. 80,000 20,000 Inc. 28,000 $148,000 17,000 11,000 Inc. $112,000