Question

Joyner Company’s income statement for Year 2 follows:

Sales $ 703,000
Cost of goods sold 217,000
Gross margin 486,000
Selling and administrative expenses 217,000
Net operating income 269,000
Nonoperating items:
Gain on sale of equipment 7,000
Income before taxes 276,000
Income taxes 110,400
Net income $ 165,600

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

Year 2 Year 1
Assets
Cash $ 99,100 $ 74,600
Accounts receivable 270,000 123,000
Inventory 319,000 284,000
Prepaid expenses 11,000 22,000
Total current assets 699,100 503,600
Property, plant, and equipment 633,000 504,000
Less accumulated depreciation 167,000 130,700
Net property, plant, and equipment 466,000 373,300
Loan to Hymans Company 43,000 0
Total assets $ 1,208,100 $ 876,900
Liabilities and Stockholders' Equity
Accounts payable $ 318,000 $ 253,000
Accrued liabilities 41,000 60,000
Income taxes payable 85,900 80,900
Total current liabilities 444,900 393,900
Bonds payable 201,000 108,000
Total liabilities 645,900 501,900
Common stock 336,000 284,000
Retained earnings 226,200 91,000
Total stockholders' equity 562,200 375,000
Total liabilities and stockholders' equity $ 1,208,100 $ 876,900

Equipment that had cost $31,400 and on which there was accumulated depreciation of $11,400 was sold during Year 2 for $27,000. 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.

1a. Prepare a statement of cash flows for Year

1b.Compute the free cash flow for Year 2.

Answer 1

Cash flow indirect method
Cash flow from operating activities
Net income		165600
Adjustments to reconcile the net income
Depreciation and amortization expense	47700
Gain on sale of equipment	-7000
Changes in current asset and liabilities
Increase in accounts receivable	-147000
Increase in inventory	-35000
Decrease in prepaid expense	11000
Increase in accounts payable	65000
Decrease in accrued liabilities	-19000
Increase in Income tax payable	5000	-79300
Cash flow from operating activities		86300
Cash flow from Investing activities
Equipment sold	27000
Loan to hymans co,	-43000
Equipment purchased	-160400
Cash flow from Investing activities		-176400

	Cash flow from Financing activities
	Common stock	52000
	Dividend	-30400
	Bonds payable issued	93000
	Cash flow from Financing activities		114600
	Net Cash and cash equivalent		24500
Add	Beginning cash and cash equivalent		74600
	Ending cash and cash equivalent		99100