prepare a statement of cash flows--indirect method

Presented below are the financial statements of Warner Company.

WARNER COMPANY

Comparative Balance Sheet

December 31

Assets 2023 2022

Cash $35,000 $20,000

Accounts receivable 20,000 14,000

Inventory 28,000 20,000

Property, plant, and equipment 60,000 78,000

Accumulated depreciation (32,000) (24,000)

Total $111,000 $108,000

Liabilities and Stockholders' Equity

Accounts payable $19,000 $15,000

Income taxes payable 7,000 8,000

Bonds payable 17,000 33,000

Common stock 18,000 14,000

Retained earnings 50,000 38,000

Total $111,000 $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 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 cost $18,000 originally and had accumulated depreciation of $9,500 at the time of sale.

Instructions for Problem 3

(a) prepare a statement of cash flows using the indirect method.

(b) Compute free cash flow.