Katy Perry Company

Comparative Balance Sheets

December 1

ASSETS

2014

2013

Cash

$38,000

$20,000

Accounts Receivable

30,000

14,000

Inventory

27,000

20,000

Equipment

60,000

78,000

Accumulated Dep'n-equipment

(29,000)

(24,000)

TOTAL

$126,000

$108,000

LIABILITIES AND STOCKHOLDER'S EQUITY

Accounts Payable

24,000

15,000

Income Taxes Payable

7,000

8,000

Bonds Payable

27,000

33,000

Common Stock

18,000

14,000

Retained Earnings

50,000

38,000

TOTAL

$126,000

$108,000

Katy Perry Company

Income Statement

For the year ended December 1, 2014

Sales revenue

$242,000

Cost of Goods Sold

175,000

Gross Profit

67,000

Operating Expenses

24,000

Income from Operations

43,000

Interest Expense

3,000

Income before income taxes

40,000

Income tax expense

8,000

Net Income

$32,000

Additional information:

1.Dividends declared and paid were $20,000

2.During the year, the equipment was sold for $8,500 cash. This equipment cost $18,000 originally and had a book value of $8,500 at the time of sale.

3.All depreciation expense $14,500, is in the operating expenses.

4.All sales and purchases are on account.

How would youmake statement of cash flows using the indirect method?

How would you compute free cash flow?