P17-7A Presented below are the financial statements of Weller Company. WELLER CO
ID: 2347299 • Letter: P
Question
P17-7APresented below are the financial statements of Weller Company.
WELLER COMPANY
Comparative Balance Sheets
December 31
Assets
2012
2011
Cash $ 35,000 $ 20,000
Accounts receivable 33,000 14,000
Merchandise inventory 27,000 20,000
Property, Plant and Equipment 60,000 78,000
Accumulated depreciation
(29,000)
(24,000)
Total
$126,000
$108,000
Liabilities and Stockholders' Equity
Accounts payable $ 29,000 $ 15,000
Income taxes payable 7,000 8,000
Bonds payable 27,000 33,000
Common stock 18,000 14,000
Retained earnings
45,000
38,000
Total
$126,000
$108,000
WELLER COMPANY
Income Statement
For the Year Ended December 31, 2012
Sales $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
Additional data:
Dividends declared and paid were $25,000.
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.
All depreciation expense, $14,500, is in the selling expense category.
All sales and purchases are on account.
Prepare a statement of cash flows using the indirect method. (List multiple entries with a positive cash flow first and then the negative cash flow. List amounts from largest to smallest e.g. 10, 5, 3, 2. If amount decreases cash flow, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).
Compute free cash flow.
Explanation / Answer
You just need to go line by line with each asset/liability item. For example, a/r went up by $21k so that was a $21k use of cash. This is because when the company sold their product they extended credit to their customers instead of collecting cash. Inventory went down by $14k so that was a source of cash. Instead of stuff sitting around in their warehouse it was sold and is therefore a source of cash. This stuff is hard, I feel for ya. Best of luck, hope I helped a little!
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