Joyner Company's income statement for year 2 follows:

Sales 900,000

GOGS 500,000

Gross margin 400,000

Selling and administrative expense 328,000

Net operating income 72,000

Gain on sales of equipment 8,000

Income before taxes 80,000

Income taxes 24,000

Net income 56,000

It's balance sheet amounts at the end of years one and 2 are as follows:

Cash y2 4,000 y1 21,000

Acc rec y2 250,000 y1 170,000

Inventory y2 310,000 y1 260,000

Prepaid expense y2 7,000 y1 14,000

Total current assets y2 571,000 y1 465,000

Property, plant, and equipment y2 510,000 y1 400,000

Less accum. Dep. y2 132,000 y1 120,000

Net property, plant, and equipment y2 378,000 y1 280,000

Loan to Hymans company y2 40,000 y1 0

Total assets y2 989,000 y1 745,000

Accounts pay. Y2 310,000 y1 250,000

Accrued liabilities y2 20,000 y1 30,000

Income tax pay. Y2 45,000 y1 42,000

Total current liabilities y2 3750,000 y1 322,000

Bonds pay. Y2 190,000 y1 70,000

Total liabilities y2 565,000 y1 392,000

Common stock y2 300,000 y1 270,000

Retained earnings y2 124,000 y1 83,000

Total stockholders equity y2 424,000 y1 353,000

Total liabilities and stockholders equity y2 989,000 y1 745,000

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 flow for year 2.

3. Compute the free cash flow for year 2

4. Briefly explain why cash declined so sharply during the year.