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Joyner Company’s income statement for Year 2 follows: Sales $ 701,000 Cost of go

ID: 2599384 • Letter: J

Question

Joyner Company’s income statement for Year 2 follows: Sales $ 701,000 Cost of goods sold 342,000 Gross margin 359,000 Selling and administrative expenses 217,000 Net operating income 142,000 Nonoperating items: Gain on sale of equipment 7,000 Income before taxes 149,000 Income taxes 44,700 Net income $ 104,300 Its balance sheet amounts at the end of Years 1 and 2 are as follows: Year 2 Year 1 Assets Cash $ 50,600 $ 62,900 Accounts receivable 258,000 149,000 Inventory 319,000 285,000 Prepaid expenses 10,000 20,000 Total current assets 637,600 516,900 Property, plant, and equipment 633,000 511,000 Less accumulated depreciation 166,500 132,000 Net property, plant, and equipment 466,500 379,000 Loan to Hymans Company 40,000 0 Total assets $ 1,144,100 $ 895,900 Liabilities and Stockholders' Equity Accounts payable $ 317,000 $ 267,000 Accrued liabilities 42,000 54,000 Income taxes payable 84,300 81,900 Total current liabilities 443,300 402,900 Bonds payable 193,000 115,000 Total liabilities 636,300 517,900 Common stock 344,000 288,000 Retained earnings 163,800 90,000 Total stockholders' equity 507,800 378,000 Total liabilities and stockholders' equity $ 1,144,100 $ 895,900 Equipment that had cost $31,300 and on which there was accumulated depreciation of $11,100 was sold during Year 2 for $27,200. 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.

Explanation / Answer

Details

Net

Cash Flow from Operating Activities

Net Profit before tax

149,000

Add: Non Cash and Non Operating Expenses

Depreciation

45,600

Less: Non Operating Income

Gain on sale of equipment

(7,000)

Operating profit before Working Capital changes

187,600

Add: Increase in Current Liabilities And decrease in Current Assets

Increase in Accounts Payable

50,000

Decrease in prepaid expenses

10,000

Less: Decrease in Current Liabilities And Increase in Current Assets

Increase in Accounts Receivable

(109,000)

Increase in Inventory

(34,000)

Decrease in Accrues Liabilities

(12,000)

Operating profit before Income Tax

92,600

Income Tax Paid

42,300

Cash Flow from Operating Activities (A)

50,300

Cash Flow from Investing Activities

Sale of Equipment

27,200

Purchase of equipment

(153,300)

Loan to Hymans Company

(40,000)

Cash Used in Investing Activities (B)

(166,100)

Cash Flow from Financing Activities

Issue of Shares

56,000

Bonds issued

78,000

Dividend Paid

(30,500)

Cash Flow from Financing Activities ( C )

103,500

Decrease in Cash Flow (A+B+C)

12,300

Opening Cash

62,900

Closing Cash

50,600

Equipment A/c

In $

In $

To Bal b/d

511,000

By bank

27,200

By acc depreciation

11,100

To cash

153,300

To P&L

7,000

By Bal c/d

633,000

Total

671,300

Total

671,300

Acc. Depreciation A/c

In $

In $

To Equipment

(Old machinery)

11,100

By Bal b/d

132,000

By P&L

45,600

To bal. c/d

166,500

Total

177,600

Total

177,600

Income Tax A/c

In $

In $

To Cash

42,300

By Bal b/d

81,900

By P&L

44,700

To bal. c/d

84,300

Total

126,600

Total

126,600

,

Note:-

There is a Increase of 73,800 in Retained earnings while Net income is $104,300. This is because of Cash dividend declared by the company.

Dividend = Net income – Increase in retained earnings

= 104,300 – 73,800

= $30,500

Details

Net

Cash Flow from Operating Activities

Net Profit before tax

149,000

Add: Non Cash and Non Operating Expenses

Depreciation

45,600

Less: Non Operating Income

Gain on sale of equipment

(7,000)

Operating profit before Working Capital changes

187,600

Add: Increase in Current Liabilities And decrease in Current Assets

Increase in Accounts Payable

50,000

Decrease in prepaid expenses

10,000

Less: Decrease in Current Liabilities And Increase in Current Assets

Increase in Accounts Receivable

(109,000)

Increase in Inventory

(34,000)

Decrease in Accrues Liabilities

(12,000)

Operating profit before Income Tax

92,600

Income Tax Paid

42,300

Cash Flow from Operating Activities (A)

50,300

Cash Flow from Investing Activities

Sale of Equipment

27,200

Purchase of equipment

(153,300)

Loan to Hymans Company

(40,000)

Cash Used in Investing Activities (B)

(166,100)

Cash Flow from Financing Activities

Issue of Shares

56,000

Bonds issued

78,000

Dividend Paid

(30,500)

Cash Flow from Financing Activities ( C )

103,500

Decrease in Cash Flow (A+B+C)

12,300

Opening Cash

62,900

Closing Cash

50,600