Question

Joyner Company’s income statement for Year 2 follows:

Sales	$	701,000
Cost of goods sold		322,000
Gross margin		379,000
Selling and administrative expenses		216,000
Net operating income		163,000
Nonoperating items:
Gain on sale of equipment		10,000
Income before taxes		173,000
Income taxes		69,200
Net income	$	103,800

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

	Year 2			Year 1
Assets
Cash and cash equivalents	$	35,000		$	85,200
Accounts receivable		263,000			127,000
Inventory		320,000			289,000
Prepaid expenses		9,000			18,000
Total current assets		627,000			519,200
Property, plant, and equipment		637,000			520,000
Less accumulated depreciation		165,700			130,900
Net property, plant, and equipment		471,300			389,100
Loan to Hymans Company		41,000			0
Total assets	$	1,139,300		$	908,300
Liabilities and Stockholders' Equity
Accounts payable	$	314,000		$	269,000
Accrued liabilities		41,000			56,000
Income taxes payable		85,800			80,300
Total current liabilities		440,800			405,300
Bonds payable		200,000			118,000
Total liabilities		640,800			523,300
Common stock		332,000			288,000
Retained earnings		166,500			97,000
Total stockholders' equity		498,500			385,000
Total liabilities and stockholders' equity	$	1,139,300		$	908,300

Equipment that had cost $32,000 and on which there was accumulated depreciation of $11,500 was sold during Year 2 for $30,500. 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

103,800 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 $ 46,300 Gain on sale of Equipment S (10,000) Increase in accounts Receivables $ (136,000) Increase in Inventory S (31,000) Decrease in Prepaid Expenses $ 9,000 Increase in accounts Payable $ 45,000 Decrease in accured liabilities $ (15,000) Increase in Income taxes payable $ 5,500S Net Cash flow from operating activities $ (86,200) 17,600

$ 17,600 $ 30,500 $ (149,000) S (41,000) Joyner Company Statement of Cash flows For Year 2 Operating activities Net Cash flow from operating activities Investing Activities Sale of Equipment Purchase of equipment Loan to Hymans Company Net Cash flow from Investing 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 S (159,500) $ S $ 82.000 44.000 (34.300) S S $ $ 91,700 (50,200) 85,200 35,000

3 Free Cash Flow $ (165,700) Amount(S) Computation of Free Cash Flow Particulars Net Cash flow from operating activities Less: capital Expenditures Cash Dividends paid Amount(S) $ 17,600 S (149,000) S (34.300) S (183,300) $ (165,700) Free Cash flow