Question

In: Accounting

Balance sheet accounts

Balance sheet accounts for Joyner Company contained the following amounts at the end of Years 1and 2:

Yeer2 Year 1 Debit Balance Accounts $ 21,000 Cash 4,000 Accounts Receivable 250,000 170,000 Inventory 310,000 260,000 Pr

The company’s income statement for Year 2 follows:

Equipment that had cost $40,000 and on which there was accumulated depreciation of $30,000 was sold during Year 2 for $18,000. Cash dividends totaling $15,000 were declared and paid during Year 2.

Required:

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

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

3. Compute the free cash flow for Year 2.

4. Briefly explain why cash declined so sharply during the year.

Expert Solution

1. and 2.

Joyner Company Statement of Cash Flows For Year 2
Operating activities:
Net income		$ 56,000
Adjustments to convert net income to cash basis:
Depreciation charges	$42,000
Increase in accounts receivable	(80,000)
Increase in inventory	(50,000)
Decrease in prepaid expenses	7,000
Increase in accounts payable	60,000
Decrease in accrued liabilities	(10,000)
Gain on sale of equipment	(8,000)
Increase in deferred income taxes	3,000	(36,000)
Net cash provided by operating activities		20,000
Investing activities:

Proceeds from the sale of equipment	18,000
Loan to Hymas Company	(40,000)
Additions to plant and equipment	(150,000)
Net cash used for investing activities		(172,000)
Financing activities:
Increase in bonds payable	120,000
Increase in common stock	30,000
Cash dividends	(15,000)
Net cash provided by financing activities		135,000
Net decrease in cash		(17,000)
Cash balance, beginning of year		21,000
Cash balance, end of year		$ 4,000

3. Free cash flow computation:

Net cash provided by operating activities		$ 20,000
Capital expenditures	$150,000
Dividends	15,000	165,000
Free cash flow		$(145,000)

4. A relatively small amount of cash was provided by operating activities during the year as a result of large increases in accounts receivable and inventory. Most of the cash that was provided by operating activities was paid out in dividends. The small amount that remained, combined with the cash provided by the issue of bonds and the issue of common stock, was insufficient to purchase a large amount of equipment and make a loan to another company. As a result, the cash on hand declined sharply during the year.

Note to the instructor: Although it is not a requirement, a worksheet may be helpful.

			Cash
		Source	Flow	Adjust-	Adjusted	Classi-
	Change	or use?	Effect	ments	Effect	fication
Assets (except cash and cash equivalents)
Current assets:
Accounts receivable	+80	Use	–80		–80	Operating
Inventory	+50	Use	–50		–50	Operating
Prepaid expenses	–7	Source	+7		+7	Operating
Noncurrent assets:
Loan to Hymas Company	+40	Use	–40		–40	Investing
Plant and equipment	+110	Use	–110	–40	–150	Investing
Liabilities, Contra-assets, and Stockholders’ Equity
Contra-assets:
Accumulated depreciation	+12	Source	+12	+30	+42	Operating
Current liabilities:
Accounts payable	+60	Source	+60		+60	Operating
Accrued liabilities	–10	Use	–10		–10	Operating
Noncurrent liabilities:
Bonds payable	+120	Source	+120		+120	Financing
Deferred income taxes	+3	Source	+3		+3	Operating
			Cash
		Source	Flow	Adjust-	Adjusted	Classi-
	Change	or use?	Effect	ments	Effect	fication
Stockholders’ equity:
Common stock	+30	Source	+30		+30	Financing
Retained earnings:
Net income	+56	Source	+56		+56	Operating
Dividends	–15	Use	–15		–15	Financing
Additional entries
Proceeds from sale of equipment				+18	+18	Investing
Gain on sale of equipment				–8	–8	Operating
Total			–17		–17

A relatively small amount of cash was provided by operating activities during the year as a result of large increases in accounts receivable and inventory. Most of the cash that was provided by operating activities was paid out in dividends. The small amount that remained, combined with the cash provided by the issue of bonds and the issue of common stock, was insufficient to purchase a large amount of equipment and make a loan to another company. As a result, the cash on hand declined sharply during the year.

Note to the instructor: Although it is not a requirement, a worksheet may be helpful.

Raffay answered 1 year ago

Auditing the accounts payable balance on the balance sheet

When auditing the accounts payable balance on the balance sheet, an auditor’s procedures most likely would focus primarily on management’s assertion of Select one:a. Existenceb. Rights and obligationsc. Presentation and disclosured. Completeness.

The balance sheet accounts listed below are the only items on the company's balance sheet for...

The balance sheet accounts listed below are the only items on the company's balance sheet for each year and the income statement accounts are the only items on the company's income statement for each year. Item 2017 2018 Accounts payable 550 230 Accounts receivable 510 ? Accruals 1,000 1,100 Cash 300 550 Common Stock 2,000 2,250 Cost of goods sold 4,000 4,600 Depreciation expense 200 350 Interest expense 170 190 Inventory 3,000 3,250 Long term debt 1,500 1,650 Net fixed...

Comparative balance sheet accounts of Splish Company are presented below. SPLISH COMPANY COMPARATIVE BALANCE SHEET ACCOUNTS...

Comparative balance sheet accounts of Splish Company are presented below. SPLISH COMPANY COMPARATIVE BALANCE SHEET ACCOUNTS AS OF DECEMBER 31 Debit Balances 2020 2019 Cash $70,600 $50,500 Accounts Receivable 155,100 130,000 Inventory 75,600 61,100 Debt investments (available-for-sale) 55,100 84,300 Equipment 70,300 48,400 Buildings 144,400 144,400 Land 39,600 25,300 Totals $610,700 $544,000 Credit Balances Allowance for Doubtful Accounts $10,000 $7,900 Accumulated Depreciation—Equipment 21,000 14,100 Accumulated Depreciation—Buildings 37,300 28,200 Accounts Payable 66,400 60,600 Income Taxes Payable 11,900 9,900 Long-Term Notes Payable 62,000...

Comparative balance sheet accounts of Carla Company are presented below. CARLA COMPANY COMPARATIVE BALANCE SHEET ACCOUNTS...

Comparative balance sheet accounts of Carla Company are presented below. CARLA COMPANY COMPARATIVE BALANCE SHEET ACCOUNTS AS OF DECEMBER 31 Debit Balances 2020 2019 Cash $69,900 $50,600 Accounts Receivable 154,800 130,300 Inventory 75,700 61,400 Debt investments (available-for-sale) 55,100 84,600 Equipment 69,300 48,400 Buildings 145,700 145,700 Land 40,200 25,200 Totals $610,700 $546,200 Credit Balances Allowance for Doubtful Accounts $10,100 $7,900 Accumulated Depreciation—Equipment 21,000 14,000 Accumulated Depreciation—Buildings 36,800 28,100 Accounts Payable 65,600 59,500 Income Taxes Payable 12,000 10,100 Long-Term Notes Payable 62,000...

Comparative balance sheet accounts of Oriole Inc. are presented below. ORIOLE INC. COMPARATIVE BALANCE SHEET ACCOUNTS...

Comparative balance sheet accounts of Oriole Inc. are presented below. ORIOLE INC. COMPARATIVE BALANCE SHEET ACCOUNTS AS OF DECEMBER 31, 2020 AND 2019 December 31 Debit Accounts 2020 2019 Cash $42,200 $33,700 Accounts Receivable 70,800 60,200 Inventory 30,000 24,300 Equity investments 22,400 38,300 Machinery 30,100 18,800 Buildings 67,000 56,100 Land 7,500 7,500 $270,000 $238,900 Credit Accounts Allowance for Doubtful Accounts $2,200 $1,500 Accumulated Depreciation—Machinery 5,700 2,300 Accumulated Depreciation—Buildings 13,600 9,000 Accounts Payable 35,100 24,700 Accrued Payables 3,300 2,600 Long-Term Notes...

Comparative balance sheet accounts of Kingbird Inc. are presented below. KINGBIRD INC. COMPARATIVE BALANCE SHEET ACCOUNTS...

Comparative balance sheet accounts of Kingbird Inc. are presented below. KINGBIRD INC. COMPARATIVE BALANCE SHEET ACCOUNTS AS OF DECEMBER 31, 2020 AND 2019 December 31 Debit Accounts 2020 2019 Cash $42,200 $33,900 Accounts Receivable 71,100 59,600 Inventory 30,000 23,800 Equity investments 22,400 38,400 Machinery 30,200 18,600 Buildings 67,000 56,000 Land 7,500 7,500 $270,400 $237,800 Credit Accounts Allowance for Doubtful Accounts $2,300 $1,600 Accumulated Depreciation—Machinery 5,600 2,200 Accumulated Depreciation—Buildings 13,400 9,100 Accounts Payable 34,800 24,600 Accrued Payables 3,400 2,600 Long-Term Notes...

Comparative balance sheet accounts of Whispering Inc. are presented below. WHISPERING INC. COMPARATIVE BALANCE SHEET ACCOUNTS...

Comparative balance sheet accounts of Whispering Inc. are presented below. WHISPERING INC. COMPARATIVE BALANCE SHEET ACCOUNTS AS OF DECEMBER 31, 2017 AND 2016 December 31 Debit Accounts 2017 2016 Cash $42,400 $33,500 Accounts Receivable 70,200 59,800 Inventory 29,700 24,100 Equity investments 22,500 38,100 Machinery 30,100 18,900 Buildings 67,000 55,700 Land 7,400 7,400 $269,300 $237,500 Credit Accounts Allowance for Doubtful Accounts $2,200 $1,600 Accumulated Depreciation—Machinery 5,600 2,200 Accumulated Depreciation—Buildings 13,600 9,000 Accounts Payable 35,300 24,600 Accrued Payables 3,400 2,600 Long-Term Notes...

Comparative balance sheet accounts of Larkspur Inc. are presented below. LARKSPUR INC. COMPARATIVE BALANCE SHEET ACCOUNTS...

Comparative balance sheet accounts of Larkspur Inc. are presented below. LARKSPUR INC. COMPARATIVE BALANCE SHEET ACCOUNTS AS OF DECEMBER 31, 2017 AND 2016 December 31 Debit Accounts 2017 2016 Cash $42,300 $33,500 Accounts Receivable 70,600 59,900 Inventory 30,300 24,000 Equity investments 22,300 38,200 Machinery 29,900 18,700 Buildings 67,300 56,200 Land 7,600 7,600 $270,300 $238,100 Credit Accounts Allowance for Doubtful Accounts $2,300 $1,500 Accumulated Depreciation—Machinery 5,700 2,300 Accumulated Depreciation—Buildings 13,600 9,100 Accounts Payable 35,000 24,800 Accrued Payables 3,400 2,600 Long-Term Notes...

Comparative balance sheet accounts of Sweet Company are presented below. SWEET COMPANY COMPARATIVE BALANCE SHEET ACCOUNTS...

Comparative balance sheet accounts of Sweet Company are presented below. SWEET COMPANY COMPARATIVE BALANCE SHEET ACCOUNTS AS OF DECEMBER 31 Debit Balances 2020 2019 Cash $69,600 $51,100 Accounts Receivable 156,500 130,000 Inventory 75,700 60,800 Debt investments (available-for-sale) 55,000 85,300 Equipment 69,600 47,800 Buildings 144,900 144,900 Land 39,600 25,200 Totals $610,900 $545,100 Credit Balances Allowance for Doubtful Accounts $10,000 $8,000 Accumulated Depreciation—Equipment 20,800 14,100 Accumulated Depreciation—Buildings 37,000 27,900 Accounts Payable 66,500 59,800 Income Taxes Payable 11,900 10,000 Long-Term Notes Payable 62,000...

Balance Sheet Preparation The December 31, 2016, balance sheet accounts of Hitt Company are shown here...

Balance Sheet Preparation The December 31, 2016, balance sheet accounts of Hitt Company are shown here in alphabetical order: Accounts Payable $20,800 Equipment $72,400 Accounts Receivable 21,000 Inventory 37,200 Accumulated Depreciation: Buildings 53,000 Land 30,000 Accumulated Depreciation: Equipment 35,100 Marketable Securities (short-term) 6,100 Additional Paid-in Capital on Common Stock 24,000 Patents (net) 9,500 Additional Paid-in Capital on Preferred Stock 11,500 Preferred Stock, $100 par 21,000 Allowance for Doubtful Accounts 800 Retained Earnings 53,740 Bonds Payable (due 2024) 77,000 Revenues 107,000...