| Joyner Company’s income statement for Year 2 follows: |
| Sales | $ | 706,000 |
| Cost of goods sold | 331,000 | |
| Gross margin | 375,000 | |
| Selling and administrative expenses | 216,000 | |
| Net operating income | 159,000 | |
| Gain on sale of equipment | 6,000 | |
| Income before taxes | 165,000 | |
| Income taxes | 49,500 | |
| Net income | $ | 115,500 |
| Its balance sheet amounts at the end of Years 1 and 2 are as follows: |
| Year 2 | Year 1 | |||
| Assets | ||||
| Cash | $ | 42,500 | $ | 72,900 |
| Accounts receivable | 270,000 | 129,000 | ||
| Inventory | 319,000 | 282,000 | ||
| Prepaid expenses | 9,500 | 19,000 | ||
| Total current assets | 641,000 | 502,900 | ||
| Property, plant, and equipment | 624,000 | 510,000 | ||
| Less accumulated depreciation | 165,600 | 130,800 | ||
| Net property, plant, and equipment | 458,400 | 379,200 | ||
| Loan to Hymans Company | 47,000 | 0 | ||
| Total assets | $ | 1,146,400 | $ | 882,100 |
| Liabilities and Stockholders’ Equity | ||||
| Accounts payable | $ | 311,000 | $ | 262,000 |
| Accrued liabilities | 44,000 | 51,000 | ||
| Income taxes payable | 85,100 | 80,100 | ||
| Total current liabilities | 440,100 | 393,100 | ||
| Bonds payable | 198,000 | 112,000 | ||
| Total liabilities | 638,100 | 505,100 | ||
| Common stock | 333,000 | 283,000 | ||
| Retained earnings | 175,300 | 94,000 | ||
| Total stockholders’ equity | 508,300 | 377,000 | ||
| Total liabilities and stockholders’ equity | $ | 1,146,400 | $ | 882,100 |
| Equipment that had cost $30,600 and on which there was accumulated depreciation of $10,000 was sold during Year 2 for $26,600. 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 for operating activities for Year 2. (Negative amount should be indicated by a minus sign.) |
| 2. | Prepare a statement of cash flows for Year 2. (List any deduction in cash and cash outflows as negative amounts.) |
| 3. | Compute the free cash flow for Year 2. (Negative amount should be indicated by a minus sign |
1Using the indirect method, compute the net cash for operating activities for Year 2
| Operating activities: | ||
| Net income | 115500 | |
| Adjustments to convert net income to cash basis: | ||
| Depreciation charges | 44800 | |
| Increase in accounts receivable | -141000 | |
| Increase in inventory | -37000 | |
| Decrease in prepaid expenses | 9500 | |
| Increase in accounts payable | 49000 | |
| Decrease in accrued liabilities | -7000 | |
| Gain on sale of equipment | -6000 | |
| Increase in deferred income taxes | 5000 | -82700 |
| Net cash provided by operating activities | 32800 |
2
Prepare a statement of cash flows for Year 2.
| Statement of Cash Flows | ||
| For Year 2 | ||
| Operating activities: | ||
| Net income | 115500 | |
| Adjustments to convert net income to cash basis: | ||
| Depreciation charges | 44800 | |
| Increase in accounts receivable | -141000 | |
| Increase in inventory | -37000 | |
| Decrease in prepaid expenses | 9500 | |
| Increase in accounts payable | 49000 | |
| Decrease in accrued liabilities | -7000 | |
| Gain on sale of equipment | -6000 | |
| Increase in deferred income taxes | 5000 | -82700 |
| Net cash provided by operating activities | 32800 | |
| Investing activities: | ||
| Proceeds from the sale of equipment | 26600 | |
| Loan to Hymas Company | -47000 | |
| Additions to plant and equipment | -144600 | -165000 |
| Net cash used for investing activities | -132200 | |
| Financing activities: | ||
| Increase in bonds payable | 86000 | |
| Increase in common stock | 51000 | |
| Cash dividends | -34200 | |
| Net cash provided by financing activities | 102800 | |
| Net decrease in cash | -29400 | |
| Cash balance, beginning of year | 71900 | |
| Cash balance, end of year | 42500 | |
