Presented below are the fi nancial statements of Rajesh Company. RAJESH COMPANY Comparative Balance Sheets December 31 Assets 2012 2011 Cash $ 35,000 $ 20,000 Accounts receivable 33,000 14,000 Inventory 27,000 20,000 Equipment 60,000 78,000 Accumulated depreciation—equipment (29,000) (24,000) Total $126,000 $108,000 Liabilities and Stockholders’ Equity Accounts payable $ 29,000 $ 15,000 Income taxes payable 7,000 8,000 Bonds payable 27,000 33,000 Common stock 18,000 14,000 Retained earnings 45,000 38,000 Total $126,000 $108,000 RAJESH COMPANY Income Statement For the Year Ended December 31, 2012 Sales revenue $242,000 Cost of goods sold 175,000 Gross profi t 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 data: 1. Dividends declared and paid were $25,000. 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. Instructions (a) Prepare a statement of cash fl ows using the indirect method. (b) Compute free cash fl ow.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter11: The Statement Of Cash Flows

Section: Chapter Questions

Problem 55PSA

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Presented below are the fi nancial statements of Rajesh Company. RAJESH COMPANY Comparative Balance Sheets December 31 Assets 2012 2011 Cash $ 35,000 $ 20,000 Accounts receivable 33,000 14,000 Inventory 27,000 20,000 Equipment 60,000 78,000 Accumulated depreciation—equipment (29,000) (24,000) Total $126,000 $108,000 Liabilities and Stockholders’ Equity Accounts payable $ 29,000 $ 15,000 Income taxes payable 7,000 8,000 Bonds payable 27,000 33,000 Common stock 18,000 14,000 Retained earnings 45,000 38,000 Total $126,000 $108,000 RAJESH COMPANY Income Statement For the Year Ended December 31, 2012 Sales revenue $242,000 Cost of goods sold 175,000 Gross profi t 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 data: 1. Dividends declared and paid were $25,000. 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. Instructions (a) Prepare a statement of cash fl ows using the indirect method. (b) Compute free cash fl ow.

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