Question

Problem 13-10 Prepare a Statement of Cash Flows; Free Cash Flow

Joyner Company’s income statement for Year 2 follows:

Sales	$	709,000
Cost of goods sold		362,000
Gross margin		347,000
Selling and administrative expenses		216,000
Net operating income		131,000
Nonoperating items:
Gain on sale of equipment		7,000
Income before taxes		138,000
Income taxes		41,400
Net income	$	96,600

Its balance sheet amounts at the end of Years 1 and 2 are as follows:

	Year 2			Year 1
Assets
Cash and cash equivalents	$	34,700		$	75,100
Accounts receivable		273,000			115,000
Inventory		320,000			287,000
Prepaid expenses		10,000			20,000
Total current assets		637,700			497,100
Property, plant, and equipment		622,000			518,000
Less accumulated depreciation		166,000			131,800
Net property, plant, and equipment		456,000			386,200
Loan to Hymans Company		45,000			0
Total assets	$	1,138,700		$	883,300
Liabilities and Stockholders' Equity
Accounts payable	$	313,000		$	258,000
Accrued liabilities		42,000			59,000
Income taxes payable		85,000			81,300
Total current liabilities		440,000			398,300
Bonds payable		193,000			116,000
Total liabilities		633,000			514,300
Common stock		346,000			273,000
Retained earnings		159,700			96,000
Total stockholders' equity		505,700			369,000
Total liabilities and stockholders' equity	$	1,138,700		$	883,300

Equipment that had cost $30,600 and on which there was accumulated depreciation of $11,500 was sold during Year 2 for $26,100. The company declared and paid a cash dividend during Year 2. It did not retire any bonds or repurchase any of its own stock.

Required:

1. Using the indirect method, compute the net cash provided by/used in operating activities for Year 2.

2. Prepare a statement of cash flows for Year 2.

3. Compute the free cash flow for Year 2.

Answer 1

$ 96,600 Joyner Company Statement of Cash flows - Indirect Method (Partial) Cash flows from Operating Activities: Net income Adjustments to reconcile Net Income to Net Cash Provided by Operating activities Depreciation expenses $ 45,700 Gain on sale of Equipment $ (7,000) Increase in accounts Receivables $ (158,000) Increase in Inventory $ (33,000) Decrease in Prepaid Expenses $ 10,000 Increase in accounts Payable $ 55,000 Decrease in accured liabilities $ (17,000) Increase in Income taxes payable $ 3,700 Net Cash flow from operating activities $ $ (100,600) (4,000) Joyner Company Statement of Cash flows For Year 2 Operating activities Net Cash flow from operating activities Investing Activities Sale of Equipment S (4,000) $ 26,100

$ (134,600) $ (45,000) $ (153,500) Purchase of equipment Loan to Hymans Company Net Cash flow fromInvesting activities Financing Activities Issuance of Bonds payable Issuance of Common stock Cash Dividends paid Net Cash flow from Financing activities Net Increase in Cash Beginning cash and Cash equivalents Ending cash and Cash equivalents $ $ $ 77,000 73,000 (32,900) $ S $ $ 117,100 (40,400) 75,100 34,700 3 Free Cash Flow S (171,500) Amount(s) Computation of Free Cash Flow Particulars Net Cash flow from operating activities Less: capital Expenditures Cash Dividends paid Amount(S) $ (4,000) $ (134,600) $ (32.900 $ $ (167,500) (171,500) Free Cash flow