P17-7B Presented below are the financial statements of Rocastle Company. ROCASTLE COMPANY Comparative Balance Sheets December 31 Assets 2012 2011 Cash $24,000 $ 33,000 Accounts receivable 25,000 14,000 Inventory 41,000 25,000 Equipment $70,000 $78,000 Less: Accumulated depreciation-equipment (27,000) 43,000 (24,000) 54,000 Total $133,000 $126,000 Liabilities and Stockholders' Equity Accounts payable Income taxes payable Bonds payable Common stock Retained earnings Total $31,000 $ 43,000 24,000 20,000 20,000 10,000 25,000 25,000 33,000 28,000 $133,000 $126,000 ROCASTLE COMPANY Income Statement For the Year Ended December 31, 2012 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. Dividends of $23,000 were declared and paid. 2. During the year equipment was sold for $10,000 cash. This equipment cost $15,000 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