Question

Joyner Company’s income statement for Year 2 follows:

Sales	$	705,000
Cost of goods sold		58,000
Gross margin		647,000
Selling and administrative expenses		217,000
Net operating income		430,000
Gain on sale of equipment		6,000
Income before taxes		436,000
Income taxes		174,400
Net income	$	261,600

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

	Year 2		Year 1
Assets
Cash	$	205,000	$	85,700
Accounts receivable		259,000		141,000
Inventory		319,000		275,000
Prepaid expenses		9,500		19,000
Total current assets		792,500		520,700
Property, plant, and equipment		627,000		508,000
Less accumulated depreciation		166,800		131,700
Net property, plant, and equipment		460,200		376,300
Loan to Hymans Company		50,000		0
Total assets	$	1,302,700	$	897,000
Liabilities and Stockholders' Equity
Accounts payable	$	314,000	$	266,000
Accrued liabilities		46,000		56,000
Income taxes payable		85,200		82,000
Total current liabilities		445,200		404,000
Bonds payable		207,000		117,000
Total liabilities		652,200		521,000
Common stock		332,000		286,000
Retained earnings		318,500		90,000
Total stockholders' equity		650,500		376,000
Total liabilities and stockholders' equity	$	1,302,700	$	897,000

     Equipment that had cost $31,100 and on which there was accumulated depreciation of $10,200 was sold during Year 2 for $26,900. 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.

Joyner Company
Statement of Cash Flows
For the Year Ended
Cash flows from operating activities
Net Income		$ 261,600
Adjustments to reconcile net income to :
Depreciation expense	$      45,300		166800+10200-131700
Gain on sale of equipment	$      (6,000)
Increase in accounts receivable	$ (118,000)		141000-259000
Decrease in inventory	$   (44,000)		275000-319000
Increase in prepaid expense	$        9,500		19000-9500
Increase in accounts payable	$      48,000		314000-266000
Decrease in accrued liabilities	$   (10,000)		46000-56000
Increase in income tax payable	$        3,200		85200-82000
		$ (72,000)
Net cash provided by operating activities		$ 189,600

2.

Joyner Company
Statement of Cash Flows
For the Year Ended
Net cash provided by operating activities		$   189,600
Cash flows from investing activities
Cash received from sale of Equipment	$      26,900
Loan given to Hymans Company	$   (50,000)
Cash paid to purchase Equipment	$ (150,100)		508000-627000-31100
Net cash used by investing activities		$ (173,200)
Cash flows from financing activities
Cash paid as dividend	$   (33,100)		318500-90000-261600
Cash received from issuance of common stock	$      46,000		332000-286000
Cash received from issuance of bonds	$      90,000		207000-117000
Net cash provided by financing activities		$   102,900
Net Decrease in cash and cash equivalents		$   119,300
Cash and cash equivalents at beginning of period		$      85,700
Cash and cash equivalents at end of period		$   205,000

3.

Net cash provided by operating activities	$   189,600
Less: Capital expenditure	$ (150,100)
Less: Dividend	$   (33,100)
Free cash flow	$        6,400