Presented below are the financial statements of Ortega Company.
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ORTEGA COMPANY |
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Assets |
2010 |
2009 |
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Cash |
$ 24,000 |
$ 33,000 |
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Accounts receivable |
25,000 |
14,000 |
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Merchandise inventory |
41,000 |
25,000 |
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Property, plant, and equipment |
$ 70,000 |
$ 78,000 |
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Less: Accumulated depreciation |
(27,000) |
43,000 |
(24,000) |
54,000 |
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|
Total |
$133,000 |
$126,000 |
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Liabilities and Stockholders’ Equity |
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Accounts payable |
$ 31,000 |
$ 43,000 |
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Income taxes payable |
24,000 |
20,000 |
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Bonds payable |
20,000 |
10,000 |
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Common stock |
25,000 |
25,000 |
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Retained earnings |
33,000 |
28,000 |
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|
Total |
$133,000 |
$126,000 |
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ORTEGA COMPANY |
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Sales |
$286,000 |
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Cost of goods sold |
204,000 |
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Gross profit |
82,000 |
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Operating expenses |
37,000 |
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Income from operations |
45,000 |
|
Interest expense |
7,000 |
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Income before income taxes |
38,000 |
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Income tax expense |
10,000 |
|
Net income |
$ 28,000 |
Additional data:
1. Dividends of $23,000 were declared and paid.
2. During the year equipment was sold for $10,000 cash. This equipment cost $15,000 originally and had a book value of $10,000 at the time of sale.
3. All depreciation expense, $8,000, is in the operating expenses.
4. All sales and purchases are on account.
5. Additional equipment was purchased for $7,000 cash.
Instructions
(a) Prepare a statement of cash flows using the indirect method.
(b) Compute free cash flow.