P12-8A Prepare a statement of cash flows - direct method, and compute free cash flow.

P12.8A Prepare a statement of cash flows - direct method, and compute free cash flow.
Presented here are the financial statements of Warner Company
	WARNER COMPANY
	Comparative Balance Sheet
	December 31
			2022		2021
	Assets
	Cash		$38,000		$20,000
	Accounts Receivable		30,000		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		$ 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
	WARNER COMPANY
	Income Statement
	For the Year ended December 31, 2022
	Sales revenue		$242,000
	Cost of goods sold		175,000
	Gross profit		67,000
	Selling expenses	$ 18,000
	Administrative expenses	6,000
	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 was $17,500.
2. Dividends declared and paid were $20,000.
3. During the year equipment was sold for $8,500 cash. This equipment originally cost $18,000 and had
accumulated depreciation of $9,500 at the time of sale.
4. Bonds were redeemed at their carrying value.
5. Common stock was issued at par for cash.
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 inventory purchases are on account.
Instructions
(a) Prepare a statement of cash flows for Warner Company using the direct 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 "?" .
(a)	WARNER COMPANY
	Statement of Cash Flows
	For the Year Ended December 31, 2022
	Cash flows from operating activities
	Cash receipts from customers		Value
	Less cash payments:
	To suppliers	Value
	For operating expenses	Value
	For interest	Value
	For income taxes	Value	?
	Net cash provided by operating activities		?
	Cash flows from investing activities
	Sale of equipment	Value
	Net cash provided by investing activities		Value
	Cash flows from financing activities
	Issuance of common stock	Value
	Redemption of bonds	Value
	Payment of dividends	Value
	Net cash used by financing activities		?
	Net increase in cash		?
	Cash at beginning of period		Value
	Cash at end of period		?
(b)	Free Cash Flow:
	Net cash provided by operating activities		Value
	Less: Capital expenditures	Value
	Cash dividends	Value	?
	Free Cash Flow		Value
After you have completed the requirements of P12-8A, consider the additional question.
1.	Assume that the 2022 balances for accounts receivable, inventory, and accounts payable changed to $26,000,
	$30,000, and $23,000 respectively. Dividends declared also changed to $28,000. Show the impact on the
	statement of cash flows and free cash flow.