Question
oyner Companys income statement for Year 2 follows: Sales $ 707,000 Cost of goods sold 227,000 Gross margin 480,000 Selling and administrative expenses 150,400 Net
oyner Companys income statement for Year 2 follows:
Sales | $ | 707,000 |
Cost of goods sold | 227,000 | |
Gross margin | 480,000 | |
Selling and administrative expenses | 150,400 | |
Net operating income | 329,600 | |
Nonoperating items: | ||
Gain on sale of equipment | 5,000 | |
Income before taxes | 334,600 | |
Income taxes | 100,380 | |
Net income | $ | 234,220 |
Its balance sheet amounts at the end of Years 1 and 2 are as follows:
Year 2 | Year 1 | ||||
Assets | |||||
Cash | $ | 228,520 | $ | 74,700 | |
Accounts receivable | 225,000 | 126,000 | |||
Inventory | 319,000 | 282,000 | |||
Prepaid expenses | 8,500 | 17,000 | |||
Total current assets | 781,020 | 499,700 | |||
Property, plant, and equipment | 627,000 | 512,000 | |||
Less accumulated depreciation | 166,400 | 130,300 | |||
Net property, plant, and equipment | 460,600 | 381,700 | |||
Loan to Hymans Company | 45,000 | 0 | |||
Total assets | $ | 1,286,620 | $ | 881,400 | |
Liabilities and Stockholders' Equity | |||||
Accounts payable | $ | 312,000 | $ | 261,000 | |
Accrued liabilities | 47,000 | 60,000 | |||
Income taxes payable | 84,600 | 80,400 | |||
Total current liabilities | 443,600 | 401,400 | |||
Bonds payable | 205,000 | 115,000 | |||
Total liabilities | 648,600 | 516,400 | |||
Common stock | 347,000 | 274,000 | |||
Retained earnings | 291,020 | 91,000 | |||
Total stockholders' equity | 638,020 | 365,000 | |||
Total liabilities and stockholders' equity | $ | 1,286,620 | $ | 881,400 | |
Equipment that had cost $31,900 and on which there was accumulated depreciation of $10,100 was sold during Year 2 for $26,800. 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.
$ 234,220 Joyner Company Statement of Cash FlowsIndirect Method (partial) Net income Adjustments to convert net income to a cash basis: Decrease in prepaid expenses $ 8,500 Increase in accounts payable 51,000 Decrease in accrued liabilities (13,000) Depreciation 46,200 Gain on sale of equipment (5,000) Increase in accounts receivable (99,000) Increase in inventory (37,000) Increase in income taxes payable 4,200 (44,100) $ 190,120 Net cash provided by operating activities Joyner Company Statement of Cash Flows For Year 2 $ 190,120 Operating activities: Net cash provided by operating activities Investing activities: Proceeds from sale of equipment Loan to Hymans Company Additions to property, plant, and equipment $ 26,800 (45,000) (146,900) (165,100) Net cash used in investing activities Financing activities: Issuance of bonds payable Issuance of common stock Cash dividends paid 90,000 73,000 (34,200) Net cash provided by financing activities Net increase in cash 128,800 153,820 74,700 228,520 Beginning cash and cash equivalents Ending cash and cash equivalents Required 1 Required 2 Required 3 Compute the free cash flow for Year 2. (Negative amount should be indicated by a minus sign.) Free cash flow $ 70,020 XStep by Step Solution
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