Question

Joyner Company’s income statement for Year 2 follows:

Sales   $   714,000
Cost of goods sold      207,000
Gross margin      507,000
Selling and administrative expenses      217,000
Net operating income      290,000
Nonoperating items:        
Gain on sale of equipment      7,000
Income before taxes      297,000
Income taxes      89,100
Net income   $   207,900

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

    Year 2      Year 1
Assets                 
Cash and cash equivalents   $   112,200      $   76,100
Accounts receivable      279,000         132,000
Inventory      320,000         280,000
Prepaid expenses      10,500         21,000
Total current assets      721,700         509,100
Property, plant, and equipment      636,000         514,000
Less accumulated depreciation      165,900         130,200
Net property, plant, and equipment      470,100         383,800
Loan to Hymans Company      43,000         0
Total assets   $   1,234,800      $   892,900
Liabilities and Stockholders' Equity                 
Accounts payable   $   311,000      $   257,000
Accrued liabilities      40,000         55,000
Income taxes payable      85,500         81,900
Total current liabilities      436,500         393,900
Bonds payable      197,000         118,000
Total liabilities      633,500         511,900
Common stock      331,000         287,000
Retained earnings      270,300         94,000
Total stockholders' equity      601,300         381,000
Total liabilities and stockholders' equity   $   1,234,800      $   892,900

Equipment that had cost $31,900 and on which there was accumulated depreciation of $11,600 was sold during Year 2 for $27,300. 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