Question

Joyner Company’s income statement for Year 2 follows:

Sales	$	705,000
Cost of goods sold		53,000
Gross margin		652,000
Selling and administrative expenses		217,000
Net operating income		435,000
Nonoperating items:
Gain on sale of equipment		8,000
Income before taxes		443,000
Income taxes		132,900
Net income	$	310,100

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

	Year 2			Year 1
Assets
Cash	$	264,400		$	47,700
Accounts receivable		267,000			137,000
Inventory		320,000			285,000
Prepaid expenses		11,000			22,000
Total current assets		862,400			491,700
Property, plant, and equipment		629,000			516,000
Less accumulated depreciation		165,000			131,900
Net property, plant, and equipment		464,000			384,100
Loan to Hymans Company		46,000			0
Total assets	$	1,372,400		$	875,800
Liabilities and Stockholders' Equity
Accounts payable	$	316,000		$	253,000
Accrued liabilities		45,000			51,000
Income taxes payable		85,900			80,800
Total current liabilities		446,900			384,800
Bonds payable		206,000			106,000
Total liabilities		652,900			490,800
Common stock		344,000			286,000
Retained earnings		375,500			99,000
Total stockholders' equity		719,500			385,000
Total liabilities and stockholders' equity	$	1,372,400		$	875,800

Equipment that had cost $30,900 and on which there was accumulated depreciation of $10,300 was sold during Year 2 for $28,600. 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.

Answer 1

ans 1 and 2
Statement of cash flow
Cash flows from operating activities
net income		$310,100
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation expenses 165000-(131900-10300)	43400
Gain on sale of equipment	-8000
Increase in Accounts receivable	-130000
Increase in Inventories	-35000
Decrease in prepaid expenses	11000
Increase in Accounts Payable	63000
Decraese in Accured Liabilities	-6000
Incraese in Income tax payable	5100
		-56500
Net cash from operating activities		253600
Cash flows from investing activities
Purchase of Property Plant & equipment 629000-(516000-30900)	-143900
Loan to Hymus company	-46000
Sale of equipment	28600	-161300
Net cash used investing activities		(161,300.00)
Cash flows from financing activities
Borrowing of Bonds Payable	100000
Issue of Common stock	58,000.00
Payment of Dividend 375500-(99000+310100)	-33600
		124,400.00
Net cash used financing activitie		124,400.00
Net Increase in cash and cash equivalents		216,700.00
Cash and cash equivalents at beginning of period		47,700.00
Ending Balance		264,400.00
ans 3 Free cash flow	109700
Net cash from operating activities-Capital expenditure
253600-143900

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