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
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