Question

Joyner Company’s income statement for Year 2 follows:

Sales	$	718,000
Cost of goods sold		327,000
Gross margin		391,000
Selling and administrative expenses		218,000
Net operating income		173,000
Nonoperating items:
Gain on sale of equipment		9,000
Income before taxes		182,000
Income taxes		72,800
Net income	$	109,200

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

	Year 2			Year 1
Assets
Cash	$	53,400		$	55,500
Accounts receivable		256,000			135,000
Inventory		319,000			284,000
Prepaid expenses		9,500			19,000
Total current assets		637,900			493,500
Property, plant, and equipment		633,000			512,000
Less accumulated depreciation		165,000			132,000
Net property, plant, and equipment		468,000			380,000
Loan to Hymans Company		43,000			0
Total assets	$	1,148,900		$	873,500
Liabilities and Stockholders' Equity
Accounts payable	$	313,000		$	267,000
Accrued liabilities		44,000			55,000
Income taxes payable		85,500			81,500
Total current liabilities		442,500			403,500
Bonds payable		198,000			105,000
Total liabilities		640,500			508,500
Common stock		340,000			272,000
Retained earnings		168,400			93,000
Total stockholders' equity		508,400			365,000
Total liabilities and stockholders' equity	$	1,148,900		$	873,500

Equipment that had cost $30,500 and on which there was accumulated depreciation of $10,400 was sold during Year 2 for $29,100. 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 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.

Required 1.

Using the indirect method, compute the net cash provided by/used in operating activities for Year 2. (List any deduction in cash outflows as negative amounts.)

	Joyner Company Statement of Cash Flows—Indirect Method (partial)

Required 2

Prepare a statement of cash flows for Year 2. (List any deduction in cash and cash outflows as negative amounts.)

	Joyner Company Statement of Cash Flows for Joyner Company For Year 2 Operating activities: Investing activities: Financing activities: Beginning cash and cash equivalents Ending cash and cash equivalents

Required 3

Computer the free cash flows for Year 2

Answer 1

Answer-1)-Using the indirect method, the net cash provided by/used in operating activities for Year 2-

JOYNER COMPANY
STATEMENT OF CASH FLOWS PARTIAL (USING INDIRECT METHOD)
FOR THE YEAR 2
Particulars		Amount
		$
Cash flow from operating activities
Net Income		109200
Adjustments to reconcile net income to net cash provided by operating activities
Adjustment for non cash effects
Depreciation		43400
Gain on sale of equipment		-9000
Change in operating assets & liabilities
Increase in accounts receivable		-121000
Increase in inventories		-35000
Decrease in prepaid expenses		9500
Increase in accounts payable		46000
Decrease in accrued liabilities		-11000
Increase in income taxes payable		4000
Net cash flow from operating activities (a)		36100

2)-

JOYNER COMPANY
STATEMENT OF CASH FLOWS (USING INDIRECT METHOD)
FOR THE YEAR 2
Particulars		Amount
		$
Cash flow from operating activities (a)		36100

Cash Flow from Investing activities
New equipment purchased		-151500
Old equipment sold		29100
Net cash Flow from Investing activities (b)		-122400
Cash Flow from Financing activities
Loan to Hymans company		-43000
Issued common stock		68000
Cash dividends paid	($93000+$109200-$168400)	-33800
Bonds issued		93000
Net cash Flow from Financing activities (c)		84200
Net Change in cash c=a+b+c		-2100
Beginning cash balance		55500
Closing cash balance		53400

3)- The free cash flows for Year 2 = $(149200).

Explanation- Free cash flow = Net cash provided by operating activities- Capital expenditure-Cash dividends paid

= $36100-$151500-$33800

= $(149200)