Question

Joyner Company’s income statement for Year 2 follows:

Sales	$	714,000
Cost of goods sold		327,000
Gross margin		387,000
Selling and administrative expenses		217,000
Net operating income		170,000
Nonoperating items:
Gain on sale of equipment		8,000
Income before taxes		178,000
Income taxes		71,200
Net income	$	106,800

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

	Year 2			Year 1
Assets
Cash	$	57,500		$	62,700
Accounts receivable		260,000			112,000
Inventory		319,000			273,000
Prepaid expenses		9,000			18,000
Total current assets		645,500			465,700
Property, plant, and equipment		624,000			519,000
Less accumulated depreciation		166,700			131,000
Net property, plant, and equipment		457,300			388,000
Loan to Hymans Company		48,000			0
Total assets	$	1,150,800		$	853,700
Liabilities and Stockholders' Equity
Accounts payable	$	312,000		$	257,000
Accrued liabilities		43,000			52,000
Income taxes payable		84,600			81,700
Total current liabilities		439,600			390,700
Bonds payable		207,000			102,000
Total liabilities		646,600			492,700
Common stock		341,000			270,000
Retained earnings		163,200			91,000
Total stockholders' equity		504,200			361,000
Total liabilities and stockholders' equity	$	1,150,800		$	853,700

Equipment that had cost $31,400 and on which there was accumulated depreciation of $10,800 was sold during Year 2 for $28,600. 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

Answer 2