Problem 13-10 Prepare a Statement of Cash Flows; Free Cash Flow [LO13-1, LO13-2, LO13-3]

Joyner Companys income statement for Year 2 follows:

Sales	$	714,000
Cost of goods sold		182,000
Gross margin		532,000
Selling and administrative expenses		151,000
Net operating income		381,000
Nonoperating items:
Gain on sale of equipment		9,000
Income before taxes		390,000
Income taxes		156,000
Net income	$	234,000

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

	Year 2			Year 1
Assets
Cash and cash equivalents	$	210,500		$	84,800
Accounts receivable		230,000			115,000
Inventory		319,000			289,000
Prepaid expenses		9,500			19,000
Total current assets		769,000			507,800
Property, plant, and equipment		637,000			507,000
Less accumulated depreciation		166,900			131,200
Net property, plant, and equipment		470,100			375,800
Loan to Hymans Company		47,000			0
Total assets	$	1,286,100		$	883,600
Liabilities and Stockholders' Equity
Accounts payable	$	314,000		$	266,000
Accrued liabilities		48,000			59,000
Income taxes payable		85,900			80,600
Total current liabilities		447,900			405,600
Bonds payable		200,000			107,000
Total liabilities		647,900			512,600
Common stock		347,000			282,000
Retained earnings		291,200			89,000
Total stockholders' equity		638,200			371,000
Total liabilities and stockholders' equity	$	1,286,100		$	883,600

Equipment that had cost $31,300 and on which there was accumulated depreciation of $11,800 was sold during Year 2 for $28,500. 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.