Question

Problem 12-08A Presented below are the financial statements of Ayayai Company. Ayayai Company Comparative Balance Sheets December 31 Assets 2022 Cash $ 105,000 Accounts receivable 60,000 Inventory 84,000 Property, plant, and equipment 180,000 Accumulated depreciation (96,000) Total $333,000 2021 $ 60,000 42,000 60,000 234,000 (72,000) $324,000 Liabilities and Stockholders' Equity Accounts payable Income taxes payable Bonds payable Common stock Retained earnings Total $ 45,000 24,000 99,000 $ 57,000 21,000 51,000 54,000 150,000 $333,000 42,000 114,000 $324,000 Ayayai Company Income Statement For the Year Ended December 31, 2022 Sales revenue Cost of goods sold Gross profit Selling expenses $54,000 $726,000 525,000 201,000

Answer 1

Requirement #1)

Operating expenses:

=( Selling expenses - Depreciation) + Administrative expenses

= (54000-52500)+18000

=1500+18000

=$19500

Note : It is given that all depreciation expense is in selling expense category.

STATEMENT OF CASH FLOWS (DIRECT METHOD)
Cash flows from operating activities:
Cash receipts from customers		708000
Less. Cash payments
For income tax	27000
Interest	9000
Operating expense	19500
To suppliers	537000	(592,500)
Net cash provided by operating activities		115,500

Requirement #2)

Free cash flow :

= Cash provided by operating activities - capital expenditures

= 115,500-60,000

= 55,500

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