P13-7A Prepare a statement of cash flows – indirect method, and compute free cash flow.
Comparative Balance Sheet
December 31
Accounts Receivable30,000
Accumulated depreciation–equipment(29,000)
Liabilities and Stockholders’ Equity
Accounts payable$24,000
Income taxes payable7,000
Bonds payable27,000
Common stock18,000
Retained earnings50,000
Income Statement
For the Year ended December 31, 2 017
Sales revenue$242,000
Cost of goods sold175,000
Gross profit67,000
Operating expenses24,000
Income from operations43,000
Interest expense3,000
Income before income taxes40,000
Income tax expense8,000
Net income$32,000
Additional data:
1. Dividends declared and paid were $20,000.
2. During the year 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.
(a) Prepare a statement of cash flows using the indirect 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 “?” .
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash flows from operating activities
     Net incomeValue
    Adjustments to reconcile net income to
    net cash provided by operating activities
         Depreciation expenseValue
          Increase in accounts receivableValue
          Increase in inventoryValue
         Increase in accounts payableValue
         Decrease in income taxes payableValue?
         Net cash provided by operating activities?
Cash flows from investing activities
     Sale of equipmentValue
         Net cash provided by investing activitiesValue
Cash flows from financing activities
     Issuance of common stockValue
     Redemption of bondsValue
     Payment of dividendsValue
           Net cash used by financing activities?
Net increase in cash?
Cash at beginning of periodValue
Cash at end of period?
(b)Free Cash Flow:
Net cash provided by operating activitiesValue
Less: Capital expendituresValue
            Cash dividendsValue
After you have completed the requirements of P13-7A, consider the additional question.
Answers are on the other tab in this file.
1.Assume that depreciation changed to $17,500 and the asset was sold for $11,500 cash. Also assume that the
book value of the asset at the time of sale was also $11,500. Show the impact of these changes on the
statement of cash flows and free cash flow.

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