Data for Rajesh Company are presented in P13-7A. Further analysis reveals the following.

1. Accounts payable pertain to merchandise suppliers.

2. All operating expenses except for depreciation were paid in cash.

3. All depreciation expense is in the operating expenses.

4. All sales and purchases are on account.

Instructions

(a) Prepare a statement of cash flows for Rajesh Company using the direct method.

(b) Compute free cash flow.

Data From P13-7A

Presented below and on the next page are the financial statements of Rajesh Company.

Rajesh Company
Income Statement
For the Year Ended December 31, 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 data:
1. Depreciation expense is 13,300.
2. Dividends declared and paid were $20,000.
3. During the year, equipment was sold for $9,700 cash. This equipment cost $18,000
originally and had accumulated depreciation of $8,300 at the time of sale.
Instructions
(a) Prepare a statement of cash flows using the indirect method.
(b) Compute free cash fl ow.

Rajesh Company Comparative Balance Sheets December 31 Assets 2014 2013 $ 37,000 33,000 $ 20,000 Cash Accounts receivable 14,000 20,000 78,000 Inventory Equipment Accumulated depreciation-equipment 30,000 60,000 (29,000) (24,000) Total $131,000 $108,000 Liabilities and Stockholders' Equity Accounts payable Income taxes payable Bonds payable $ 29,000 7,000 27,000 18,000 50,000 $ 15,000 8,000 33,000 14,000 38,000 Common stock Retained earnings Total $131,000 $108,000