Problem 15-10 (Algo) Prepare a Statement of Cash Flows; Free Cash Flow [LO15-1, LO15-2, LO15-3]

Joyner Companys income statement for Year 2 follows:

Sales	$	701,000
Cost of goods sold		180,000
Gross margin		521,000
Selling and administrative expenses		151,100
Net operating income		369,900
Nonoperating items:
Gain on sale of equipment		9,000
Income before taxes		378,900
Income taxes		151,560
Net income	$	227,340

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

	Year 2			Year 1
Assets
Cash	$	203,240		$	90,700
Accounts receivable		225,000			127,000
Inventory		320,000			271,000
Prepaid expenses		9,500			19,000
Total current assets		757,740			507,700
Property, plant, and equipment		636,000			509,000
Less accumulated depreciation		166,100			131,400
Net property, plant, and equipment		469,900			377,600
Loan to Hymans Company		42,000			0
Total assets	$	1,269,640		$	885,300
Liabilities and Stockholders' Equity
Accounts payable	$	313,000		$	257,000
Accrued liabilities		49,000			52,000
Income taxes payable		85,200			80,300
Total current liabilities		447,200			389,300
Bonds payable		193,000			114,000
Total liabilities		640,200			503,300
Common stock		342,000			288,000
Retained earnings		287,440			94,000
Total stockholders' equity		629,440			382,000
Total liabilities and stockholders' equity	$	1,269,640		$	885,300

Equipment that had cost $30,500 and on which there was accumulated depreciation of $11,000 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.