Joyner Company’s income statement for Year 2 follows

Prepare a Statement of Cash Flows (Indirect Method); Free Cash Flow

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 accounts at the end of years 1 and 2 follows:

Debit Balance Accounts Year 2 Year 1
Cash $4,000 $21,000
A/R $250,000 $170,000
Inventory $310,000 $260,000
Prepaid Exp $7,000 $14,000
Loan to Hymas Company $40,000 $-
Plant & Equip $510,000 $400,000
Total Debits $1,121,000 $865,000

Credit Balance Accounts
Accum Depreciation $132,000 $120,000
A/P $310,000 $250,000
Accrued Liabilities $20,000 $30,000
Bonds Payable $190,000 $70,000
Deferred Income Taxes $45,000 $42,000
Common Stock $300,000 $270,000
Retained Earnings $124,000 $83,000
Total Credits $1,121,000 $865,000

Equipment that had cost $40,000 and on which there was accumulated depreciation of $30,000 was sold during Year 2 for $18,000. Cash dividends totaling $15,000 were declared and paid during Year 2.

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 the year.

Click here for the SOLUTION

This entry was posted in Homework Help. Bookmark the permalink.

Comments are closed.