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30 Sep 2018

PROBLEM 14-10 Prepare a statement of Cash Flows; Free Cash Flow (L014-1, L014-2, L014-3] Joyner Company's income statement for Year 2 follows: Sales ....... Cost of goods sold ............ Gross margin ........... Selling and administrative expenses .... Net operating income ........... Gain on sale of equipment ........... Income before taxes ............ Income taxes ................. Net income ............. $900,000 500,000 400,000 328,000 72,000 8,000 80,000 24,000 $ 56,000 Its balance sheet amounts at the end of Years 1 and 2 are as follows: Year 2 Year 1 Assets Cash ............ 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 $ 4,000 250,000 310,000 7,000 571,000 510,000 132,000 378,000 40,000 $989,000 $ 21,000 170,000 260,000 14,000 465,000 400,000 120,000 280,000 $745,000 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... $310,000 20,000 45,000 375,000 190,000 565,000 300,000 124,000 424,000 $989,000 $250,000 30,000 42,000 322,000 70,000 392,000 270,000 83,000 353,000 $745,000 Equipment that had cost $40,000 and on which there was accumulated depreciation of $30,000 was sold during Year 2 for $18,000. 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 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.

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Hubert Koch
Hubert KochLv2
3 Oct 2018

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