17-7B

Answer a, b

P17-7B Prescnted below are the financial statements of Rocastle Company ROCASTLE COMPANY Comparative Balance Sheets December 31 Assets Cash Accounts receivable Inventory Equipment Less: Accumulated depreciation-equipment (27,000) 43,000 (24,000) 54,000 2011 S 33,000 14,000 25,000 $24,000 25,000 41,000 S70,000 $78,000 Total Liabilities and Stockholders' Equity Accounts payable Income taxes payable Bonds payable Common stock Retained earnings $133,000 $126,000 $31,000 24,000 20,000 25,000 33,000 $133,000 $ 43,000 20,000 10,000 25,000 28,000 $126,000 Total ROCASTLE COMPANY Income Statement For the Year Ended December 31, 2012 Sales revenue Cost of goods sold Gross profit Operating expenses Income from operations Interest expense Income before income taxes Income tax expense Net income $286,000 204,000 82,000 37,000 45,000 7,000 38,000 10,000 S 28,000 Additional data: Dividends of $23,000 were declared and paid. 2. 1. During the year equipment was sold for $10,000 cash. This equipment cost S15,000 originally and had a book value of $10,000 at the time of sale. 3. All depreciation expense, $8,000, is in the operating expenses. 4. All sales and purchases are on account. 5. 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