Question

Joyner Company’s income statement for Year 2 follows: Sales $ 708,000 Cost of goods sold 126,000 Gross margin 582,000 Selling and administrative expenses 217,000 Net operating income 365,000 Gain on sale of equipment 9,000 Income before taxes 374,000 Income taxes 112,200 Net income $ 261,800 Its balance sheet amounts at the end of Years 1 and 2 are as follows: Year 2 Year 1 Assets Cash $ 211,800 $ 99,400 Accounts receivable 262,000 112,000 Inventory 320,000 281,000 Prepaid expenses 9,500 19,000 Total current assets 803,300 511,400 Property, plant, and equipment 624,000 502,000 Less accumulated depreciation 166,900 130,300 Net property, plant, and equipment 457,100 371,700 Loan to Hymans Company 46,000 0 Total assets $ 1,306,400 $ 883,100 Liabilities and Stockholders' Equity Accounts payable $ 317,000 $ 262,000 Accrued liabilities 41,000 52,000 Income taxes payable 85,800 81,100 Total current liabilities 443,800 395,100 Bonds payable 201,000 110,000 Total liabilities 644,800 505,100 Common stock 342,000 288,000 Retained earnings 319,600 90,000 Total stockholders' equity 661,600 378,000 Total liabilities and stockholders' equity $ 1,306,400 $ 883,100 Equipment that had cost $31,200 and on which there was accumulated depreciation of $10,100 was sold during Year 2 for $30,100. 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 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.)

Answer 1

1. Net Cash from Operating Activities

Net Income	261800
Add: Depreciation	46700
Less: Gain on sale	(9000)
Change in Account Recievable	(150000)
Change in Inventories	(39000)
Change in Prepaid exp	9500
Change in Accounts Payable	55000
Change in Accrued liab	(11000)
Change in Income tax payable	4700
Cash from Operating Activities	168700

2. Cash Flow Statement Continued

Cash from Investing Activities:
Capital Expenditure	(153200)
Sale of equipement	30100
Cash from Investing Activities	(123100)
Cash from Financing Activities:
Dividend Paid	(32200)
Cash from Financing Activities	(32200)
Net change in cash	13400

3. Free Cash Flow

Free Cash Flow:
Cash from Operating Activities	168700
Capital expenditure	(153200)
Disposals	30100
Free Cash Flow	45600