Presented below are the financial statements of Rocastle Company.

Rocastle Company Comparative Balance Sheets December 31 Assets _2014 —

Cash $ 18,000 Accounts receivable 25,000 Inventory 45,000 Equipment $§ 70,000 $ 78,000 Less: Accumulated depreciation—

equipment (27,000) 43,000 - (24,000)

Total $131,000 Liabilities and Stockholders’ Equity Accounts payable $ 31,000 Income taxes payable 24,000 Bonds payable 20,000 Common stock 25,000 Retained earnings 31,000 Total $131,000 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.

2013

$ 33,000 14,000 25,000 54,000

$126,000

$ 43,000 20,000 10,000 25,000 28,000

$126,000 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 flows using the indirect method.

(b) Compute free cash flow.