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Rocastle Direct Method

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Presented below are the financial statements of Rocastle Company.
Rocastle Company
Comparative Balance Sheets
31-Dec
Assets  2,014 2,013
Cash  18,000 33,000
Accounts receivable  25,000 14,000
Inventory  45,000 25,000
Equipment 70,000 78,000
Accumulated depreciation - equipment  (27,000) (24,000)
 Total  131,000 126,000
Liabilities and Stockholders' Equity 
Accounts payable  31,000 43,000
Income taxes payable  24,000 20,000
Bonds payable  20,000 10,000
Common stock  25,000 25,000
Retained earnings  31,000 28,000
 Total  131,000 126,000
Rajesh Company
Income Statement
For the Year Ended December 31, 2014
Sales revenue  286,000
Cost of goods sold  204,000
Gross profit  82,000
Operating expenses  37,000
Income from operations  45,000
Interest expense  7,000
Income before income taxes  38,000
Income tax expense  10,000
Net income  28,000

Additional data:
1. Depreciation expense was $6,000.
2. Dividends of $25,000 were declared and paid.
3. During the year, equipment was sold for $12,000 cash. This equipment cost $15,000
originally and had accumulated depreciation of $3,000 at the time of sale.
4. Additional equipment was purchased for $7,000 cash.

1. Accounts payable pertains to merchandise creditors.
2. All operating expenses except for depreciation are paid in cash.
3. All depreciation expense is in the operating expenses.
4. All sales and purchases are on account.

Instructions
(a) Prepare a statement of cash flows using the direct method.
(b) Compute free cash flow.

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