Question

Joyner Company’s income statement for Year 2 follows:

Sales	$	711,000
Cost of goods sold		320,000
Gross margin		391,000
Selling and administrative expenses		217,000
Net operating income		174,000
Nonoperating items:
Gain on sale of equipment		7,000
Income before taxes		181,000
Income taxes		54,300
Net income	$	126,700

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

	Year 2			Year 1
Assets
Cash	$	54,100		$	89,800
Accounts receivable		278,000			120,000
Inventory		320,000			272,000
Prepaid expenses		8,500			17,000
Total current assets		660,600			498,800
Property, plant, and equipment		631,000			501,000
Less accumulated depreciation		165,700			131,500
Net property, plant, and equipment		465,300			369,500
Loan to Hymans Company		41,000			0
Total assets	$	1,166,900		$	868,300
Liabilities and Stockholders' Equity
Accounts payable	$	314,000		$	254,000
Accrued liabilities		41,000			58,000
Income taxes payable		85,500			81,300
Total current liabilities		440,500			393,300
Bonds payable		198,000			106,000
Total liabilities		638,500			499,300
Common stock		345,000			279,000
Retained earnings		183,400			90,000
Total stockholders' equity		528,400			369,000
Total liabilities and stockholders' equity	$	1,166,900		$	868,300

Equipment that had cost $31,000 and on which there was accumulated depreciation of $10,500 was sold during Year 2 for $27,500. 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.

• Required 1
• Required 2
• Required 3

Using the indirect method, compute the net cash provided by/used in operating activities for Year 2. (List any deduction in cash outflows as negative amounts.)

	Weaver Company Statement of Cash Flows—Indirect Method (partial) 0 $0

• Required 1

• Required 2
• Required 3

Prepare a statement of cash flows for Year 2. (List any deduction in cash and cash outflows as negative amounts.)

Required 2

	Joyner Company Statement of Cash Flows For Year 2 Operating activities: Investing activities: 0 Financing activities: 0 0 Beginning cash and cash equivalents Ending cash and cash equivalents $0

• Required 3

Compute the free cash flow for Year 2. (Negative amount should be indicated by a minus sign.)

	Free cash flow

Answer 1

Answer-1)-

JOYNER COMPANY
STATEMENT OF CASH FLOWS PARTIAL (USING INDIRECT METHOD)
FOR THE YEAR ENDED
Particulars		Amount
		$
Cash flow from operating activities
Net Income		126700
Adjustments to reconcile net income to net cash provided by operating activities
Adjustment for non cash effects
Depreciation		44700
Gain on sale of equipment		-7000
Change in operating assets & liabilities
Increase in accounts receivable		-158000
Increase in inventories		-48000
Decrease in prepaid expenses		8500
Decrease in accrued liabilities		-17000
Increase in accounts payable		60000
Increase in income taxes payable		4200
Net cash flow from operating activities		14100

2)-

JOYNER COMPANY
STATEMENT OF CASH FLOWS (USING INDIRECT METHOD)
FOR THE YEAR ENDED
Particulars		Amount
		$
Cash flow from operating activities
Net Income		126700
Adjustments to reconcile net income to net cash provided by operating activities
Adjustment for non cash effects
Depreciation		44700
Gain on sale of equipment		-7000
Change in operating assets & liabilities
Increase in accounts receivable		-158000
Increase in inventories		-48000
Decrease in prepaid expenses		8500
Decrease in accrued liabilities		-17000
Increase in accounts payable		60000
Increase in income taxes payable		4200
Net cash flow from operating activities (a)		14100
Cash Flow from Investing activities
Equipment sold		27500
Equipment purchased		-161000
Net cash Flow from Investing activities (b)		-133500
Cash Flow from Financing activities
Cash dividends paid	($90000+$126700-$183400)	-33300
Common stock issued		66000
Bonds issued		92000
Loan to Hymans company		-41000
Net cash Flow from Financing activities (c)		83700
Net Change in cash c=a+b+c		-35700
Beginning cash balance		89800
Closing cash balance		54100

3)- Free cash flow = Operating cash flow – Capital expenditures- Dividends paid

= $126700-$161000-$14100

= ($48400)