Data for Warner Company are presented in P12.7A. 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 selling expense category. 

4. 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. 

Data From P12.7A

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Warner Company Comparative Balance Sheets December 31 Assets 2022 2021 Cash $ 35,000 $ 20,000 Accounts receivable 20,000 14,000 28,000 Inventory Property, plant, and equipment Accumulated depreciation 20,000 60,000 78,000 (32,000) (24,000) Total $111,000 $108,000 Liabilities and Stockholders' Equity Accounts payable Income taxes payable Bonds payable $ 19,000 7,000 $ 15,000 8,000 17,000 33,000 Common stock 18,000 14,000 Retained earnings 50,000 38,000 Total $111,000 $108,000