13-8A (a) Prepare a statement of cash flows using the direct method. (b) Compute free cash flow.

"N" COMPANY Comparative Balance Sheet December 31

ASSETS	2017	2016
CASH	$38,000	$20,000
ACCOUNTS RECEIVABLE	30,000	14,000
INVENTORY	27,000	20,000
EQUIPMENT	60,000	78,000
ACCUMULATED DEPRECIATION-EQUIPEMT	(29,000)	(24,000)
TOTAL	$126,000	$108,000
LIABILITIES & STOCKHOLDERS' EQUITY
ACCOUNTS PAYABLE	$24,000	$15,000
INCOME TAXES PAYABLE	7,000	8,000
BONDS PAYABLE	27,000	33,000
COMMON STOCK	18,000	14,000
RETAINED EARNINGS	50,000	38,000
TOTAL	$126,000	$108,000

"N" COMPANY Income Statement For the Year ended December 31, 2017

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

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.

Further analysis reveals the following. 1. Accounts payable pertain to merchandise suppliers. 2. All operating expenses except for depreciation were paid in cash.