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P 1 2 . 8 A Prepare a statement of cash flows - - direct method, and compute cash - based ratios Presented below are
PA Prepare a statement of cash flowsdirect method, and compute cashbased ratios
Presented below are the financial statements of Warner Company.
WARNER COMPANY
Comparative Balance Sheet
December
Assets
Cash $ $
Accounts receivable
Inventory
Property, plant, and equipment
Accumulated depreciation
Total $ $
Liabilities and Stockholders' Equity
Accounts payable $ $
Income taxes payable
Bonds payable
Common stock
Retained earnings
Total $ $
WARNER COMPANY
Income Statement
For the Year Ended December
Sales Revenue $
Cost of goods sold
Gross profit
Selling expenses $
Administrative expenses
Income from operations
Interest expense
Income before income taxes
Income tax expense
Net income $
Additional data:
Depreciation expense was $
Dividends declared and paid were $
During the year equipment was sold for $ cash. This equipment cost $
originally and had accumulated depreciation of $ at the time of sale.
Further analysis reveals the following.
Accounts payable pertains to merchandise suppliers.
All operating expenses except for depreciation were paid in cash.
All depreciation expense is in the selling expense category'
All sales and purchases are on account.
Instructions
a Prepare a statement of cash flows for Warner Company using the direct method.
b Compute free cash flow.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a
After you have completed PA consider the additional question.
Assume that balance for accounts receivable, inventory and
accounts payable changed to $ $ and $
respectively. Show the impact of these changes on the statement of
cash flows and the ratios.
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