Question

Managerial Accounting:

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

Joyner Company's income statement for Year 2 follows: Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Nonoperating items: Gain on sale of equipment Income before taxes Income taxes Net income $ 706,000 99,000 607,000 217,000 390,000 5,000 395,000 118,500 $ 276,500 Its balance sheet amounts at the end of Years 1 and 2 are as follows: Year 1 Year 2 $ 203,900 279,000 320,000 8,000 810.900 637,000 $ 69,600 133,000 274,000 16,000 492,600 507.000 130,400 376,600 165,800 - 471,200 49,000 $1,331,100 $ 869,200 Assets Cash and cash equivalents Accounts receivable Inventory Prepaid expenses Total current assets Property, plant, and equipment Less accumulated depreciation Net property, plant, and equipment Loan to Hymans Company Total assets Liabilities and Stockholders' Equity Accounts payable Accrued liabilities Income taxes payable Total current liabilities Bonds payable Total liabilities Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 319,000 45.000 85,700 449,700 208,000 657 700 336,000 337400 673.400 $1,331,100 S 251,000 55,000 81,200 387,200 116,000 503,200 274,000 92.000 366,000 $ 869,200 Equipment that had cost $31,000 and on which there was accumulated depreciation of $10,700 was sold during Year 2 for $25,300. 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

Answer 1

1.

Joyner Company
Statement of Cash flows
For Year 2
Cash flows from operating activities
Net Income		$   276,500
Adjustments to reconcile net income to ;
Depreciation expense	$      46,100		165800-130400+10700
Gain on sale of equipment	$      (5,000)
Increase in accounts receivable	$ (146,000)
Increase in inventories	$   (46,000)
Decrease in prepaid expense	$        8,000
Increase in accounts payable	$      68,000
Decrease in accrued liabilities	$   (10,000)
Increase in income tax payable	$        4,500
		$   (80,400)
Net cash provided by operating activities		$   196,100

2.

Joyner Company
Statement of Cash flows
For Year 2
Net cash provided by operating activities		$   196,100
Cash flows from investing activities
Cash paid for purchase of property, plant and equipment	$ (161,000)		507000-637000-31000
Cash received from sale of equipment	$      25,300
Loan given to Hymans Company	$   (49,000)
Net cash used by investing activities		$ (184,700)
Cash flows from financing activities
Cash paid for dividends	$   (31,100)		337400-92000-276500
Cash received from issuance of stock	$      62,000
Cash received from issuance of bonds	$      92,000
Net cash provided by financing activities		$   122,900
Net Increase in cash and cash equivalents		$   134,300
Cash and cash equivalents at beginning of period		$      69,600
Cash and cash equivalents at end of period		$   203,900

3.

Net cash provided by operating activities	$   196,100
Less: Capital expenditures	$ (161,000)
Less: Dividends	$   (31,100)
Free cash flow	$        4,000

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