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P12-8A Prepare a statement of cash flows--direct method, and compute cash-based ratios
Presented below are the financial statements of Warner Company.
	WARNER COMPANY
	Comparative Balance Sheet
	December 31
	Assets				2017		2016
	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, 2017
	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.
Further analysis reveals the following.
1.	Accounts payable pertains 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.
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, 2017
	Cash flows from operating activities
	Cash receipts from customers						Value	(1)
	Less cash payments:
	To suppliers				Value	(2)
	For operating expenses				Value	(3)
	For interest				Value
	For income taxes				Value	(4)	Value
	Net cash provided by operating activities						?
	Cash flows from investing activities
	Sale of equipment						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						?
	Computations:
(1)	Cash receipts from customers
	Sales				Value
	Deduct: Increase in accounts receivable				Value
	Cash receipts from customers				?
(2)	Cash payments to suppliers
	Cost of goods sold				Value
	Add: Increase in inventory				Value
	Cost of purchases				?
	Deduct: Increase in accounts payable				4,000
	Cash payments to suppliers				?
(3)	Cash payments for operating expenses
	Operating expenses				Value
	Deduct: Depreciation				Value
	Cash payments for operating expenses				?
(4)	Cash payments for income taxes
	Income tax expense				Value
	Add: Decrease in income taxes payable				Value
	Cash payments for income taxes				?
(b)	Free cash flow
	Net cash provided by operating activities				Value
	Less: Capital expenditures				Value
	Cash dividends				Value
	Free cash flows				?

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