Joyner Company€™s income statement for Year 2 follows:
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 900,000
Cost of goods sold . . . . . . . . . . . . . . . . . 500,000
Gross margin . . . . . . . . . . . . . . . . . . . . . . 400,000
Selling and administrative expenses . . . . 328,000
Net operating income . . . . . . . . . . . . . . . 72,000
Gain on sale of equipment . . . . . . . . . . . 8,000
Income before taxes . . . . . . . . . . . . . . . . 80,000
Income taxes . . . . . . . . . . . . . . . . . . . . . . 24,000
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 56,000
Its balance sheet amounts at the end of Years 1 and 2 are as 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. 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 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 theyear.

Transcribed Image Text:

Year 2 Year 1 Assets $21,000 170,000 260,000 14,000 465,000 400,000 120,000 280,000 Accounts receivable .... 250,000 310,000 7,000 571,000 . . . 510,000 132,000 ...378,000 40,000 989,000 Inventory . . . . Total current assets Property, plant, and equipment. Less accumulated depreciation... Net property, plant, and equipment Loan to Hymans Company. . .. $745.000 Liabilities and Stockholders' Equity $250,000 30,000 42,000 322,000 70,000 392,000 270,000 83.000 353,000 $745,000 Accrued liabilities 20,000 45,000 375,000 190,000 565,000 300,000 124,000 424,000 Total liabilities and stockholders' equity$989,000 Total current liabilities Bonds payable . Total liabilities.... Retained earnings... Total stockholders' equity.