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Presented below are the financial statements of Weller Company. WELLER COMPANY Comparative Balance

Sheets December 31 Assets 2007 2006 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, 2007 Sales $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. Dividends declared and paid were $25,000 2. 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. 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 using the indirect method. b. Compute these cash-basis measures: 1. Current cash debt coverage ratio. 2. Cash debt coverage ratio. 3. Free cash flow. P12-7A Presented below are the financial statements of Weller Company. WELLER COMPANY Comparative Balance Sheets December 31 Assets 2007 2006 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, 2007 Sales $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: 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 is in the selling expense category. All sales and purchases are on account. Instructions: Prepare a statement of cash flows using the indirect method. Compute these cash-basis measures: 1. Current cash debt coverage ratio. 2. Cash debt coverage ratio. 3. Free cash flow. Notes in the margin: a. Cash from operations $33,500

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